Why Trump wants this sector to soar

Today’s issue in preview:

• Why Trump wants this sector to soar

• A bullish sign from the biotech bull market

• If the Iran situation gets less bad, these stocks should rally

A bullish sign from the biotech bull market

Credit: Oselote

The past week has been generally unpleasant for most financial markets, but if you’re looking for some good news, look at the biotechnology sector.

It just passed an important “stress test,” which is bullish.

Regular readers know that the biotechnology industry is one of my highest-conviction long-term investment themes.

On August 18, I sent a research note to colleagues outlining my bullish view of the sector’s price action. Since then, I’ve written more than a dozen updates on the biotech bull market. Over the past six months, the sector has outpaced the S&P by an incredible 31.7% to 2.2%.

The biotechnology sector is full of companies working on cures and treatments for hundreds of diseases. When investors grow interested in this industry, the returns can be incredible. During the last biotech bull market, the sector soared 300% over four years.

Since biotech has performed poorly since 2021, most investors are indifferent to it. But I see major potential here. I believe this industry could start regularly generating stock market doubles and triples.

The fusion of AI plus biology will generate dozens of compelling stock narratives over the coming years. Researchers running super-intelligent AI programs will be able to run millions of digital simulations for drugs and treatments. This will put medical innovation into overdrive… and create many big stock market winners.

Companies that leverage AI to “crack the code” for various diseases, treatments and drugs will enjoy 100%… 500%… even 1,000%+ stock rallies.

In many cases, these rallies will happen thanks to stories and potential… rather than a company generating revenue or earnings. Capitalizing on many of today’s biggest stock market trends means focusing on promise over profits. The biotech sector holds the potential for both.

Over the past two months, the benchmark S&P 500 index is down 4%. Today, it reached its lowest point since November. However, the SPDR S&P Biotech ETF (XBI) is up 1.3% over the past two months. It’s impressive strength in a weak market.

During periods of market weakness, I look for which stocks, ETFs, and themes are holding steady or advancing. It’s a “stress test.”

If the market drops 3%, you want to see what drops just 1%. If the market drops 2%, you want to see what climbs 1%. That sort of thing. This is often called “relative strength.” It allows you to spot the safer megatrends for investment.

It’s like looking at a beachfront neighborhood after a hurricane. Some homes lost their roofs, and some homes were blown away. But some homes were unbothered by the storm. Those are the strongest homes.

The biotech sector’s strong relative strength indicates the fundamental forces behind it are powerful. It’s yet another bullish development in the biotech bull market.

If the Iran situation gets less bad, these stocks should rally

Credit: ronniechua

Operation Epic Fury’s “negative dominoes” are starting to cause serious pain for Trump & Friends.

That’s ultimately bullish for stocks.

In Friday’s issue, we looked at the recent performance of our very profitable September 2025 oil-sector call and said it was due for a well-deserved breather, thanks to “mean reversion.”

In the stock market, mean reversion is the idea that after a financial instrument has experienced a large move in one direction and is in an abnormal state, it is likely to “revert” to a more normal state.

Put differently, assets that stage a huge move in one direction are likely to “snap back” in the opposite direction… much like a rubber band snaps back when stretched. No upside move – no matter how strong – moves in a straight line. The move will have many corrections to the downside along the way.

Because of these dynamics, I often say markets are like runners. They can’t sprint flat out for miles at a time. They need to take breaks… or “breathers.”

In the case of oil stocks, I expect them to trade lower over the coming weeks because the White House is fully aware that Operation Epic Fury has painful “negative domino” effects. Epic Fury is raising oil prices… which could raise American gasoline prices… which could hurt the Republican party during the mid-term election season. There is enormous incentive for Trump to end this quickly and let the markets calm down.

Of course, there’s a chance Epic Fury gets uglier and protracted. We’re talking the Middle East and Donald J. Trump here. But the odds favor de-escalation and lower oil prices.

If we see de-escalation, few sectors of the stock market stand to benefit more than badly beaten-up Chinese stocks. Roughly half of China’s imported oil comes from the Middle East, so investors dumped Chinese stocks in anticipation of Operation Epic Fury and its potential to constrict global oil shipments. As a result, the KraneShares China Internet ETF (KWEB) is down 17.2% over the past month and a half. The tech-focused KWEB is one of the market’s largest Chinese equity ETFs.

As you can see in the two-year chart below, KWEB has suffered badly from the anticipation of Operation Epic Fury and its knock-on effects. If Trump & Friends can de-escalate soon, this fund should enjoy a strong relief rally.

Why Trump wants this sector to soar

Credit: benedek

While we’re talking about beaten-up sectors that could rally as Epic Fury de-escalates, let’s talk about the homebuilding sector.

Late last year, I singled out the homebuilding industry as an industry set to rally in 2026. Home affordability has become a huge election issue. A large percentage of young voters can’t afford homes and are upset about it. Home affordability metrics are at all-time extremes, to the negative side.

Trump & Friends know this trend could cost them elections, so they are making significant efforts to improve the situation, which would be positive for the housing trade.

Soon after my call, the S&P Homebuilders ETF (XHB) rallied strongly. At one point in February, the fund was up 17.5% year-to-date.

Then came Operation Epic Fury.

The Iran situation has investors so worried about high oil prices, inflation, and economic weakness that they’ve sold XHB with enthusiasm. The fund is down 14.9% over the past two weeks. It is now deeply oversold and ready to rally.

This places the homebuilding sector in the same position as Chinese stocks. Trump & Friends are dealing with Epic Fury’s painful domino effects. They have enormous incentives to de-escalate. If that happens soon, XHB should enjoy a strong relief rally.

Market Notes

• Mega banks JPMorgan (JPM), Wells Fargo (WFC), and Bank of America (BAC) hit new six-month lows today amid fears that Epic Fury will damage the U.S. economy.

• Oil giants Shell (SHEL), BP (BP), and Petrobras (PBR) reached new one-year highs today.

• Credit card giant American Express (AXP) reached a six-month low today thanks to recession fears.

• Alcohol giants Diageo (DEO) and Brown Forman (BF/B) reached new one-year lows today. Drinking rates are down, and so are alcohol stocks.

• Pool installation giant Pool Corp (POOL) reached a new one-year low today.

Brian Hunt
Editor, Money & Megatrends

An urgent message from our colleagues:

Gas prices are about to explode

Iran just closed the Strait of Hormuz. A fifth of the world’s oil supply passes through that chokepoint. Oil is spiking. Gas prices are about to follow. And the inflation you thought was cooling off? It’s coming back with a vengeance. But, the chaos might actually make you money. This kind of extreme disruption has created some of the biggest paydays of my career. We’re talking 289%… 388%… and even a 1,285% gain in two days. If you’re skeptical, I understand… That’s why I’ve released this urgent free briefing to explain the whole thing… and how you can take advantage. –Jeff Clark

Click here to watch now, before this situation plays out.