In today’s email:

  • Weight-loss competition: Roche becomes the latest pharma giant with a weight-loss pill, driving Novo Nordisk and Eli Lilly shares lower.

  • Chips lead markets lower: Comments from both Presidential candidates drag semiconductor stocks lower.

  • History points to a rough few months ahead: July marks the start of profit-taking season.

The pharma industry’s hot sector just got a new player…

Companies are still looking to get in on the weight loss drug craze. It started with Novo Nordisk (NVO). Then, Eli Lilly (LLY) came out with its own weight-loss drug.

While both companies have injectable weight-loss drugs, they are both in the midst of trials for oral pills. This could be a game-changer because people may feel more comfortable taking a pill than they do an injection.

And both stocks have benefitted as a result…

Novo Nordisk shares are up nearly 500% over the past five years, while Eli Lilly’s are up nearly 800% over the same period. Those are gains we usually see in small-cap stocks or high-flying technology companies – not drugmakers with market caps in the hundreds of billions.

But the stocks are taking a breather today…

This morning, Roche (RHHBY) announced positive data from a preliminary trial for its own weight loss pill. In short, participants averaged 6% weight loss in four weeks on the drug.

The news has sent shares of both Novo Nordisk and Eli Lilly down about 3%. Roche’s announcement means more competition for these companies, even if they have the first-mover advantage.

But the market is big enough for multiple players. As our colleague Dr. David Eifrig wrote in a recent issue of the Health & Wealth Bulletin free e-letter…

In the U.S., obesity affects about 42% of adults.

That comes out to more than 100 million potential weight-loss drug clients. That should be more than enough for multiple companies to come out as winners.

In 2021, almost 2 million people in the U.S. were taking weight-loss medication, which was about 3X more than in 2019. [1]

And we think we will see those numbers continue to go up.

The Stansberry Research team – especially Stansberry Venture Value editor Dave Lashmet – have been covering this trend for years. Stansberry Digest editor Corey McLaughlin broke down their coverage of this trend in a Digest issue back in March.

And he says we’re still in the early stages, even with the big run up in Novo Nordisk and Eli Lilly shares. Corey wrote…

Here’s what most people don’t understand: Supply of these weight-loss drugs remains relatively low. Drugmakers can’t keep up with growing demand.

Roche’s drug will ease some of this supply shortage. But it’s still months – if not longer – away from hitting the market. This trend still has lots of room to run.

Cracks in the chip space…

Semiconductor stocks continued their pullback today, with the iShares Semiconductor Fund (SOXX) falling more than 6%. That pulled the broader market lower and brought the chip correction to about 8% from the peak on July 10.

Today, comments from both Presidential candidates were to blame.

First, Bloomberg reported that the Biden administration will be cracking down on companies exporting semiconductor equipment to China. Since China makes up about 32% of global chip sales, cutting off this market even a little will represent a huge hit to the sector.

Second, in an interview with Bloomberg Businessweek, former President Donald Trump said that Taiwan should be paying the U.S. for defending it against China. He also claimed that the country stole nearly all of the U.S. chip industry.

Markets took this comment as a potential threat to Taiwan and its semiconductor industry if Trump wins the election in November.

The chip industry ma

y be coming back to earth after its explosion higher on AI hype. As our colleague and Altimetry director of research Rob Spivey wrote in this morning’s DailyWealth, other areas haven’t been as strong as semiconductors. From Rob…

Overall, consumers are reeling in their spending as fast as they can. As I’ll discuss today, this is a sign that the economy is not “all clear”… even as chipmakers keep raking in the big bucks.

As Rob explained, more and more folks are becoming delinquent on their loans and pulling back on spending. But right now, the markets only seem to care about AI and semiconductors. At some point, that will change.

Nevertheless, it’s been a great start to the year…

So far in 2024, the S&P 500 is up more than 18%. The tech-heavy Nasdaq Index is up even more – posting a 22% gain. Now, we’ve covered how the gains are concentrated in a handful of stocks. But many investors in index funds have seen similar profits this year.

The good times may be ending though…

In today’s MarketWise Daily, adapted from a recent issue of the TradeSmith Daily free e-letter, editor Michael Salvatore explains why we may see some profit taking in the weeks to come. As he wrote…

Since 1950, today, July 17, through the end of October has been where we see the worst of the seasonal trend. Markets have shaved off about a quarter percent on average over the last 74 years within this timespan, and just over half of the time.

That’s not a call for a correction or near market in the near future. But don’t be surprised if indices don’t keep up their torrid pace from the first half of the year.

Over to Michael…

It’s Profit-Taking Season

Why do we know that July and August are the hottest months of the year in North America?

If you asked an astronomer, they’d explain how you can observe the Earth’s orbit, which takes it closer to the sun during these months… and the tilt of its axis, which ensures the northern hemisphere is pointed toward the giant flaming ball at the center of the solar system.

But you could also reach the same conclusion the way our ancestors would have in pre-modern times:

You could just look back at history and say, “July and August have been hot, consistently, for thousands of years. And they will be for thousands of years more.”

When you start to really understand the simple but powerful phenomenon of seasonality, trading those patterns is a cinch.

Here in TradeSmith Daily, we put a lot of stock in seasonal data.

Because it’s all about observing ever-strengthening probabilities in unique cases over a long length of time. And the more market history you have to study, the more accurate patterns you’re able to find.

For example: Smack between the longer-term bearish trend for stocks between May and October, the first half of July is an unusual period of seasonal strength.

Take a look at our TradeSmith seasonality chart of the S&P 500 covering 74 years of data:

Since 1950, today, July 17, through the end of October has been where we see the worst of the seasonal trend. Markets have shaved off about a quarter percent on average over the last 74 years within this timespan, and just over half of the time.

But look just a little further back, from June 25 to now:

70% of the time going back 74 years, markets have returned almost 1.5% on average during this short span.

What’s the takeaway?

The last few weeks of market returns have been excellent… but it’s time to take some chips off the table… and prepare for a new bout of volatility to strike.

Michael isn’t the only one expecting a turn in the stock market. Our colleague and Altimetry founder Joel Litman is forecasting a twist in the artificial intelligence story that could spark a panic in the stock market.

Investing in the right stocks is vital during times like this. And Joel is using his proprietary system at Altimetry to identify exactly what folks should be buying.