Don’t fear the pullback
Trump’s new China tariffs may jolt markets, but earnings strength, rate cuts, and AI investment are still the real story.
The S&P 500 closed down about 3% on Friday after news broke that Trump will impose steep new tariffs on Chinese goods, retaliating against China’s recent export controls on rare earth minerals. It appears Trump is trying to create leverage ahead of his upcoming meeting with Xi Jinping, and it’s in both countries’ best interests to make a deal.
In the meantime, expect more headline-induced volatility.
While volatility tends to make investors nervous, it’s important to remember volatility is opportunity. None of this changes the core trends driving the market higher: the AI infrastructure buildout, expanding defense budgets, rate cuts, and improving earnings.
Pullbacks may feel uncomfortable, but they’re also essential to a healthy market. I thought we’d see one last month, but the market had other plans. Now that it’s here, let’s look at the signals that matter.
Macro Focus
Technical support
The S&P 500 is nearing its 50-day moving average, with additional support at ~6,400, followed by 6,100, the anchored VWAP from the April lows. Will stocks sell off that far? No one knows. But those are the levels where I’ll be deploying more cash to stocks.
As always, process beats prediction. Know the levels where you’ll buy, so you can act decisively rather than emotionally.
Earnings trends continue to improve
Despite the headlines, corporate fundamentals are still trending higher. Leadership is broadening beyond large caps, a healthy sign for the market, with improving EPS trends in both the S&P 500 and the Russell 2000.
According to FactSet, 50% of companies issuing guidance for Q3 have provided positive EPS outlooks, above the five-year average of 43%. That’s not what you typically see before a major downturn. In the long run, stock prices follow earnings.
Skepticism remains high
Large speculators remain net short equities, a position rarely seen before deep drawdowns. While some speculative activity at the top end of the market does look frothy, there’s still plenty of skepticism to fuel future gains. If trade war rhetoric cools and sentiment improves, those shorts could turn into powerful buying momentum.
Portfolio Pulse
Kratos Defense KTOS 0.00%↑
Canaccord Genuity is the latest firm to raise its price target on KTOS, dramatically lifting its target price to $120 (from $74), while maintaining its Buy call. That’s a strong vote of confidence, especially in a name already up ~65% over the past month.
Canaccord pointed to recent progress across Kratos’ key programs, especially in hypersonics (MACH-TB) and Collaborative Combat Aircraft (CCA) efforts. Kratos’ $175M Navy radar sustainment award (Project Anaconda) and progress on the Space Development Agency’s ground integration system were also mentioned as building blocks.
Such a bold target bump signals that analysts are increasingly viewing Kratos not just as a speculative drone/missile supplier, but as a bridge into scalable defense platforms with higher program continuity.
KTOS shares are up 281% since I added it to the portfolio vs. 16% for the S&P 500. If you’re on board (and I hope you are) don’t forget about risk management. If a stock becomes a disproportionate % of your portfolio, it’s wise to trim into strength, even as you continue to dollar-cost average (DCA) over time. That balance allows you to lock in gains, reduce downside risk, and stay exposed to what remains one of the most exciting growth stories in defense technology.
Palantir PLTR 0.00%↑
Palantir quietly landed a meaningful win: OneMedNet, a healthcare platform for clinical trials and real-world evidence, selected Palantir to power data integration, analytics, and insights across its network. The deal signals Palantir’s creeping expansion into life sciences and health data—an arena with massive upside and long-term stickiness.
Strategically, it positions Palantir to benefit from rising demand in real-world data / real-world evidence, post-market surveillance, drug safety monitoring, and clinical trial efficiency.
It’s also a credibility build: healthcare is a sector with high regulatory, privacy, and compliance hurdles, so trust and reliability matter deeply.
The OneMedNet win isn’t blockbuster in size, but it’s big in the signal it sends: Palantir is threading AI and analytics into new, data-heavy verticals with high barriers to entry. For investors, the path to compounding involves stepping beyond defense into sectors like healthcare—and this move nudges that thesis forward.
Final thought
Markets move fast, especially when headlines dominate the narrative. But our job as investors isn’t to react to every piece of news. It’s to stay invested in the companies that will profit regardless of the chaos.
Having a plan is what keeps emotion out of the equation. Decide in advance how you’ll respond to drawdowns, where you’ll deploy cash, and which levels you’ll add at. That’s how you turn volatility from something to fear into something to capitalize on.