You Don’t Own Enough of the Market’s Top ThemeVIEW IN BROWSER By Michael Salvatore, Editor, TradeSmith Daily In This Digest:
Inflation is wreaking havoc on tech stocks The “bio-intelligence” boom lifting the healthcare sector This wave of innovation points AI at the biggest market on Earth It was the worst day for tech stocks in almost three months…Yesterday, the tech-packed Nasdaq 100 fell 2%, its worst one-day drop since late July. A major issue right now is inflation. Yesterday morning, the Bureau of Labor Statistics showed that the September Consumer Price Index is up 0.6% from the previous month. That pushed up the annual rate of inflation to from 3.4% in August to 3.7% today – a higher bump than expected. And the Producer Price Index is now running at an annual clip of 6.3%. These inflation reports have investors scared that the Fed will jack up rates again. Inflation fears are also causing a stampede out of the bond market, which is pushing up the benchmark lending rate for the entire economy – the yield on the 10-year Treasury note. The bond market is a snooze for most folks. But along with the rates the Fed sets, the 10-year yield is a huge deal. Right now, it’s around 5.1%. That’s down from a recent high above 5.3%, but still near levels not seen in nearly two decades. Higher Treasury yields choke off economic growth by raising borrowing costs. And thanks to the formula Wall Street uses to value cash flows, they also lower stock market valuations. But not every sector took a hit yesterday.
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This major theme is still hitting new highs…While most of the market fell yesterday, healthcare stocks rose 2.9%. And as I write, they’re up another nearly 3% today. This isn’t a one-off. Healthcare has been holding up on down days for weeks, and the State Street Health Care Select Sector SPDR ETF (XLV) is at all-time highs. Not only that, but also the sector has the highest number of stocks in both our Short- and Long-Term Health Green Zones. It surpasses even Technology, the sector loaded up with semiconductor and AI software stocks: 
This is hardly a surprise if you’ve been following along here in the Daily. On this week’s TradeSmith Unfiltered our CEO, Keith Kaplan, explained why healthcare stocks have been such strong performers. He calls it “bio-intelligence.” The idea is that your body, similar to a computer, runs on code. Every cell holds about 6 billion letters of DNA, and most disease comes down to that code getting copied wrong or a message getting garbled. For all of human history, we couldn’t read any of it. Then two major 21st century breakthroughs changed that. First, the cost of reading a person’s full genetic code fell from about $100 million in 2001 to a few hundred dollars today. And now with powerful AI, we have a way to spot patterns in huge piles of data at a level of accuracy no human ever could. Put those together, and all the world’s health problems, diseases, and genetic disorders start to look more and more like an engineering problem that AI can help us fix. First, we read the body. Then we rewrite it. And when a part can’t be saved, we replace it. Keith sees this as the fifth big wave after chips, software, the physical data center buildout, and the companies using AI to run their businesses. But this wave points AI at the biggest data set on Earth: all 8 billion humans. That’s why he calls it a decade-long hold, not a quick trade. And it’s why he isn’t worried about many of these stocks sitting at near-record highs. One of his top picks is Guardant Health (GH). It makes a blood test that screens for colon cancer, a simpler option for the one-third of adults who skip screening to avoid a colonoscopy. Sales of the test tripled last quarter, and the stock is in the Green Zone on our Short-Term Health Indicator. Since it first went into the Green Zone on May 27, the stock is up nearly 30%. 
In the interview, Keith walks through his four-part map of the trend, with a stock for each part and four ETFs for folks who’d rather own the whole theme. Watch Keith’s interview on TradeSmith Unfiltered here. A cancer vaccine just woke up this forgotten COVID stock…A year ago, Moderna (MRNA) was cutting jobs and watching its COVID vaccine sales dry up. But the turnaround started in August, when Moderna and Merck (MRK) announced that their experimental cancer vaccine had succeeded in a late-stage trial, slowing the return and spread of melanoma in high-risk patients. The stock jumped 176% in a single session and has since gone on to rise another 38% in less than two months. Moderna is one of the most important examples of the bio-intelligence theme right now. Its mRNA technology – applied to develop the COVID vaccines and much more – is the programmable genetic code that Keith is talking about. The “m” in mRNA stands for “messenger.” And that’s its whole job… It carries a copy of one instruction from your DNA to the parts of the cell that build proteins. And proteins do almost all the work in your body… from building muscle to fighting off infections. Moderna turned Green on our Short-Term Health Indicator back in December. Since then, it’s stayed in Green or in our cautious Yellow Zone. And through that regime, it’s risen more than 600%. 
Add Moderna to your watchlist to buy on any dips. Odds are good that none of us own enough of this revolutionary investing theme. To building wealth beyond measure, 
Michael Salvatore
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