Hey trader,
Q2 ends in just a couple of days. It’s been one of the better quarters I’ve seen in a while.
I’m wrapping everything up and laying out my thoughts for Q3 in today’s Quarterly Forecast session with the Trinity Trade at 2:30PM Eastern.
If you haven’t registered yet, now is the time.
Coming into Q2, my emphasis was simple: stock market rebound, leadership in tech. That played out exactly as expected.
But the rally is now three months old.
Last week’s price action confirmed that a major regime change is underway. If you’ve been following along, this won’t shock you.
Let’s talk about where the next big setup is forming.
AI Goes Kinetic
|
Performance Leader |
1-week |
30-day |
YTD |
1-year |
|---|---|---|---|---|
|
Sector |
Healthcare (XLV) |
Healthcare (XLV) |
Technology (XLK) |
Technology (XLK) |
The top-performing sector in the S&P 500 last week was healthcare. And it wasn’t close.
XLV printed an epic breakout. When a defensive sector surges like that, it tells you something.
Here’s what most people miss about that move.
Healthcare is traditionally defensive. A defensive sector leading the pack can signal that bulls are starting to rotate out of risk. The shot clock is beginning to wind down for momentum chasers.
But that’s the surface read. Dig deeper and you see something very different.
XLV finished up 7.80% last week. Solid. But XBI, the biotech ETF, finished up 10.53%. That’s even better.
Biotech sits under the healthcare umbrella. And right now, it’s ground zero for the next wave of artificial intelligence.
People are already calling the AI trade dead. They’ll say chips are overdone, due for a pause, and that the easy money has been made.
On the chips being due for a pause, I actually agree.
But here’s the thing about capital: it doesn’t disappear. It transfers. From one sector to another, one country to another, one asset class to another. This is basic physics applied to markets.
What made semis and large-cap tech the leaders of this AI trade in Q1 and Q2 won’t be what leads in Q3. The baton is passing.
Here’s where I see the AI capital flowing next:
- Drug discovery acceleration: AI is cutting years off clinical trial timelines. Companies like Recursion Pharmaceuticals and Relay Therapeutics are building models that identify viable drug compounds faster than any human team.
- Diagnostic imaging: AI-powered radiology tools are reducing diagnostic errors and processing time. This is a massive addressable market.
- Genomics and precision medicine: AI is unlocking personalized treatment protocols at scale. This is the next frontier after drug discovery.
- Hospital operations and workflow: Less sexy, but AI automation inside hospital systems is a multi-billion dollar cost-reduction opportunity.
These aren’t hypothetical moonshots. Revenue is already flowing into several of these categories.
The perma-bears are going to call this frothy. They’ve been calling tops since November 2023. They were wrong then and they’re wrong now.
What they’re missing is that every major technology cycle rewards early adoption. The internet rewarded the companies that adopted it first. Mobile rewarded the platforms that built for it first. AI is no different.
The healthcare sector isn’t just the next beneficiary of the AI trade. It may end up being the most transformative application of it. Solving disease at the molecular level with machine learning is not a small idea.
As Q3 opens, this is the trade I’m watching most closely. The Trinity Terminal is already picking up setups forming in biotech and healthcare tech. The institutional tide is shifting.
You can ignore this if you want. But outperforming tends to favor the people who showed up before the headline.
Take Care,
Gianni Di Poce
