AI Momentum And Fed Bets Set Up Bullish Tone For Tuesday Open

Introduction#

Yesterday’s session closed with a decisive risk-on stamp of approval: according to Monexa AI, the S&P 500 (^SPX) finished at 6,329.94, up +1.47%, locking in its third straight daily advance and leaving the large-cap benchmark less than 1.5 % from its late-July record. A dovish shift in Federal Reserve rhetoric, a wave of upbeat technology earnings, and speculation that the central bank is pivoting toward risk-management rather than inflation-containment dominated the narrative.
Overnight, Asian markets mirrored the optimism—Japan’s TOPIX added roughly +0.8 %, while the Hang Seng bounced +1.3 % on a weaker dollar—and early European trade is extending Monday’s bullish tone as investors digest reports of a potential six-month pause in planned EU-U.S. tariffs on industrial and consumer goods.
The stage is therefore set for Tuesday, August 5, 2025, with Services PMI data, July trade balances, and another slug of high-profile earnings on deck. Below, we dissect the data, sector rotations, macro backdrop, and company-specific catalysts likely to shape the opening bell.

Market Overview#

Yesterday’s Close Recap#

Overnight Developments#

The macro narrative that mattered overnight remained firmly centered on policy and earnings:
• Fed-watchers parsed comments from Ben Emons on CNBC’s Worldwide Exchange, suggesting the Committee is “shifting toward risk management” as the labor market shows incremental weakness. Bond markets promptly extended the previous day’s rally, pulling the 10-year yield back toward 3.67 %.
• In Europe, optimism mounted after Reuters reported that French negotiators are close to a temporary tariff exemption on wine and spirits, easing fears of retaliatory duties that were scheduled for later this week. The DAX future is pointing to 24,000, an all-time high.
• Asia’s session was surprisingly uneventful; the Bank of Japan, still hamstrung by local politics, signaled it has no immediate scope to hike in 2025, reinforcing the global search for yield and pro-risk backdrop.
• On the corporate side, PLTR rallied another +4.6 % in U.S. pre-market trade after raising its full-year top-line outlook to $4.15 billion on surging Artificial Intelligence Platform (AIP) demand, while German dialysis specialist Fresenius Medical Care sank on an earnings miss tied to a severe U.S. flu season.

Macroeconomic Analysis#

Economic Indicators to Watch#

Today’s marquee release is the July ISM Services PMI (10:00 a.m. ET). Consensus sits at 51.8, marginally softer than June’s 52.3. A downside surprise would reinforce expectations for a September rate cut, whereas a print north of 53 could challenge the bond-market’s 75-basis-point easing assumption into year-end.
We also receive June trade data at the same time; economists forecast a goods deficit of roughly $87 billion. Given Washington’s renewed tariff push, any unexpected import compression could carry outsized signaling value for Q3 GDP tracking models.
Finally, although not on the calendar, the Fed’s latest Senior Loan Officer Opinion Survey (SLOOS) may drop this afternoon; tighter credit standards would complement Emons’ “risk management pivot” thesis.

Global/Geopolitical Factors#

Tariff policy remains the most immediate swing factor. The EU’s effort to secure a six-month reprieve on baseline 15 % duties is viewed as constructive; at the margin, it reduces cost-push inflation risks in late-2025 and offers relief to European luxury names that trade actively on U.S. exchanges (e.g., LVMH ADRs).
On the geopolitical front, President Trump threatened to escalate duties on Indian energy imports—an incremental risk for emerging-market FX, but one still too small to derail the global risk bid. Meanwhile, State Street strategist Masahiko Loo told Bloomberg that the BOJ lacks political capital to tighten, ensuring that Japan’s yield-curve control remains a global liquidity valve.

Sector Analysis#

Sector Performance Table#

Sector Movers and Themes#

Healthcare’s outsized move owes largely to Idexx, but ResMed’s +4.38 % rebound after last month’s obesity-drug scare signals bottom-fishing in med-tech. Watch follow-through on DXCM, which fell ‑3.82 % and could act as a mean-reversion candidate if today’s PMI shows resilient services spending.
Financial Services saw modest breadth; however, rating agencies MCO and SPGI popped +3–4 %, aided by a fresh wave of corporate bond deals anticipating lower coupons. Offsetting those gains, BRK-B slipped ‑2.90 % as investors questioned performance in its reinsurance arm amid rising catastrophe frequency.
Energy lagged despite WTI holding above $83 per barrel. The sector’s underperformance illustrates the push-pull between rate-cut optimism and concerns that tariffs could dent global trade flows.

Company Insights#

Earnings and Key Movers#

Palantir Technologies: The star of the overnight tape. Monexa AI notes Q2 revenue at $1.00 billion (+48 % y/y) and adjusted EPS of $0.16 versus $0.14 consensus. Management lifted FY-25 revenue guidance to $4.14–$4.15 billion and now projects a Rule-of-40 score north of 90 %. Commercial contract value exploded +140 % to $2.27 billion, powered by AIP. At 110 x forward FCF the stock is rich, but momentum traders are unlikely to stand in its way until the next lock-up window.

ON Semiconductor: Q2 earnings of $0.53 missed the year-ago period by nearly 60 %; gross margin compressed to 37.6 % from 45.3 %. The stock’s ‑15.58 % drawdown wiped out four months of gains and dragged smaller auto-chip peers. Management’s talk of “stabilization” will need corroboration from tonight’s NXP and Microchip reports before it regains credibility.

Wayfair: Adjusted EPS of $0.87 crushed estimates ($0.33), delivering the highest profitability since 2021. Yet active users fell ‑4.5 %. The stock’s +12.7 % reaction is being viewed as short covering rather than genuine conviction buying—especially with potential tariff pull-forward juicing Q2 furniture demand.

Freshpet: Beat on EPS ($0.33 vs. $0.11) but cut its 2025 sales outlook to 13–16 % growth (from 15–18 %). Shares are holding a +6.3 % gain as investors cheer margin resilience (40.9 % GM) amid a soft pet-food backdrop.

Tyson Foods: Posted EPS of $0.91 vs. $0.81 estimate and guided FY-25 revenue up 2–3 %. The stock advanced +2.4 %. Watch packers today; stronger beef margins could spill into TSN peer JBS ADRs.

Simon Property Group: Funds-from-operations of $3.05 beat by 4 %, and occupancy hit 96 %. The REIT raised FY EPS guidance to $6.83. Yesterday’s +2 % pop may extend if today’s Services PMI suggests retail foot traffic remains firm.

Vertex Pharmaceuticals: Not in the winners’ circle—shares sank 15 % even after beating on EPS ($4.52 vs. $4.30). The culprit: ballooning R&D spend for its CRISPR pipeline and a cooler reaction to CF franchise growth. Expect biotech desks to debate whether Monday’s move finally prices in gene-therapy risk.

Notable Pre-Market Catalysts#

Before the open we’ll get results from Uber, Eli Lilly, and Caterpillar; consensus expects Uber to swing to GAAP profitability, Lilly to post another blockbuster quarter for diabetes drug Zepbound, and Caterpillar to show whether equipment backlog can offset moderating order intake. Any upside surprise from Lilly could reignite interest in weight-loss adjacency trades (think ResMed and DexCom).

Extended Analysis#

AI as the Market’s Gravity Center#

With NVDA and MSFT each commanding market caps north of $4 trillion, the market is increasingly beholden to AI cash-flow trajectories. The language of growth has shifted from “cloud migration” to “AI monetization,” and Palantir’s +93 % surge in U.S. commercial revenue is emblematic. Yet valuations have gone from expensive to theoretical; the median large-cap AI-themed stock trades at 19 × forward sales. Investors must weigh the Fed’s potential rate cuts—which lower discount rates—against the risk that higher for longer capex fatigues CFOs by 2026.

Rate-Cut Expectations and the Yield Curve#

Fed-funds futures are pricing 75 bp of easing by December, a material shift from the 50 bp priced only two weeks ago. The 2s/10s curve steepened to ‑21 bp, the flattest since March. Historically, equities can rally as the curve dis-inverts—but once it turns positive, cyclicals often underperform defensives for the subsequent three months as the earnings cycle catches down. Utilities’ leadership yesterday supports that textbook transition.

Conclusion#

Key Takeaways#

The tape is walking into Tuesday’s session with a potent mixture of AI euphoria, dovish Fed rhetoric, and constructive tariff headlines. A soft Services PMI could cement the Goldilocks narrative and extend the bid in rate-sensitives like Utilities and Real Estate; a hot print would likely push yields higher and test the durability of yesterday’s tech-led surge.
Sector rotation reveals a market hedging its bets—crowding into growth where earnings visibility is clearest (AI/Software) while simultaneously bidding defensive yield. For stock-pickers, that means scrutinizing margin sustainability (ON Semi) and capital-return discipline (Wayfair’s buyback path) as valuations stretch.
Into the open, watch:

1. Palantir’s follow-through above $165—where call open interest clusters.
2. ISM Services PMI at 10 a.m.—a potential inflection for the 10-year yield.
3. Uber and Eli Lilly earnings—bellwethers for mobility demand and GLP-1 mania, respectively.
   Provided no shock from the data tape, the path of least resistance remains higher, but traders should keep an eye on volatility tails: the VIX at 17.25 is only one headline away from a re-pricing.

Prepared before the opening bell, Tuesday, August 5, 2025.