Summary* Markets anticipate conflict resolution in the Strait of Hormuz, easing inflation fears and supporting a pause in Fed rate hikes. * Tech sector valuations have normalized with the broader market due to strong Q2 earnings, reducing risk and improving sector attractiveness. * Recent economic data, including ADP payrolls and ISM services PMI, suggest steady 2% trend growth and manageable inflation pressures. * Rare S&P 500 V-shaped reversal historically signals high probability of continued bull market and economic expansion into 2027. * This idea was discussed in more depth with members of my private investing community, The Portfolio Architect. denphumi/iStock via Getty Images

Yesterday, stocks took a breather after a record four-day run. Any further progress on lowering oil prices and easing bond yields across the curve is going to require an official reopening of the Strait of Hormuz agreed to by all parties involved. It appears that Iran and Oman have negotiated a path forward, but it remains to be seen whether President Trump will agree and use this as an opportunity to further deescalate and soon end the war.

The dollar has been weakening, which is leading to an upturn in gold and silver prices, all of which tells me that markets sense the conflict is coming to an end. That should ease inflation fears and give the Fed more room to hold off from rate hikes. CME Fed Funds futures show an increasing probability that rates will remain unchanged at the next meeting in September.

Finviz

A welcomed development from the correction in the Nasdaq Composite combined with the tremendous outperformance in second-quarter earnings reports is that the tech sector’s valuation has now fallen in line with the broad market. Valuation was my primary concern at the beginning of the year, and my reason for underweighting the sector. Earnings are growing into the elevated multiples we had seven months ago. This process is likely to continue during the second half of the year, requiring selectivity when picking stocks, but this period of consolidation has reduced risk and made the sector more attractive.

US Technology valuations(Bloomberg)

According to the ADP payroll report, private companies added 44,000 jobs last month, which fell short of expectations for 70,000 and below last month’s 95,000. Most of the new jobs came from education and health services (36k), along with the financial sector (10k) and professional business services (9k). The leisure and hospitality sector shed 11,000 jobs, but I think that has more to do with the end of the World Cup. This report was not too hot or too cold but just right to temper inflation concerns.

Private payrolls (TradingEconomics)

The Institute for Supply Management’s (PMI) service sector index inched higher in July to 54.1, continuing to point to expansion for the broad economy. While new order growth strengthened and business activity rose to a five month high, employment weakened. This suggests Friday’s labor report may come in light of the 83,000 jobs expected. Input prices remain elevated, led by petroleum-related products, but the number of commodities mentioned falling in price from the survey results rose from three to six last month. This report is consistent with trend growth of 2% in the economy.

US service sector expands (Bloomberg)

We had an extraordinary event over the past month. According to the analysts at SentimenTrader, the S&P 500 index swung from a 21-day low to a 21-day high within fewer than ten trading days. In fact, it happened in just four days! Since 1984 this has occurred just ten times when the S&P 500 was within 2% of an all-time high. The index was higher six months later 89% of the time. It was higher 12 months later every time. This is no guarantee it will happen again, but it does align with my fundamental outlook for a continuation of the economic expansion and bull market well into 2027.

SPX V-shaped reversal(SentimenTrader)

Lawrence Fuller has been managing portfolios for individual investors for 30 years, starting his career at Merrill Lynch in 1993 and working in the same capacity with several other Wall Street firms before realizing his long-term goal of complete independence when he founded Fuller Asset Management.

He also manages the Focused Growth portfolio on the new fintech platform called Dub, which is the first copy-trading platform approved by securities regulators in the US, allowing retail investors to copy the portfolio and ongoing trades of the manager they choose automatically. You can also find him on Substack and lawrencefuller.substack.com.

He is the leader of the investing group The Portfolio Architect, which focuses on an overall economic and market outlook that complements an all-weather investment strategy designed to produce consistent risk-adjusted market returns. Features include: Portfolio construction guidance, access to an “All-Weather” model portfolio and a dividend and options income portfolio, a daily brief summarizing current events, a week ahead newsletter, technical and fundamental reports, trade alerts, and 24/7 chat. Learn More.

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