weekly market update

Stocks had a tough week as strong earnings reports, better than expected macroeconomic data, seasonal tailwinds, and constructive headlines around the Speaker of the House and the UAW strikes were unable to buoy markets.  However, interest rates have started to stabilize, which we believe is necessary for any credible stock market rally, and next week over 30% of the S&P 500 will report, headlined by Apple, McDonald’s, Caterpillar and Disney.

Have Obesity Drugs Jumped the Shark?

Artificial intelligence (AI) has been the preeminent investment theme of 2023, but GLP-1 obesity drugs such as Ozempic, Wegovy, and Mounjaro are easily a close second.  These drugs were initially intended for diabetes, but their abilities to suppress appetites have become all the rage as studies have shown ~15%-20% weight loss over various trials typically ranging from 68-74 weeks.  Since over 40% of American adults are obese, the implications are significant and recently Bank of America predicted that “total calorie consumption” in the U.S. could drop between 1% and 3% by 2030, assuming between 20 million and 50 million people in the U.S. are on these drugs.

We wonder, however, if perhaps the market reaction has been overdone as recently investors and analysts have scrambled to predict the fallout from these obesity drugs and shares from a broad swath of industries have been impacted, mostly negatively.  For example, packaged foods/snacks (i.e. Coca-Cola, Hershey, Mondelez), medical device makers (i.e. CPAP machines, insulin-pumps), restaurants, and diabetes and kidney/renal companies (i.e. dialysis and drugs) have all been punished.  It seems premature to handicap the lasting impacts from these obesity drugs though, as they cost over $10,000 a year, currently can only be injected, and have been plagued by shortages.  In particular, a recent note from the firm Jefferies Group has us wondering if we have reached “peak obesity drug” as an analyst posited that if the average airline passenger dropped 10 pounds, each airline could save approximately $80 million in annual fuel costs.  Perhaps these forecasts will indeed come to fruition, but color us a bit skeptical.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder

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