“Clarity and the rally are the same event” (NOTW#105)

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Both indices were down this week, although the Best Anchor Stocks portfolio performed pretty well. The reason was something that happened this week related to the healthcare sector, which comes with several important lessons for investors (discussed in the market commentary).

Without further ado, let’s get on with it.

Out of office next week

I’m taking a holiday next week so I’ll be away from my computer. There will be no articles and no NOTW, but I expect to bring an in-depth report during the first half of September and will continue to read about several companies I have in the pipeline.

Articles of the week

I published two articles this week. The first one was (as promised) an update on Tiendas 3B (TBBB).

The company reported spectacular earnings and continues to demonstrate it is taking the Mexican grocery industry by storm. You can also read my in-depth report here.

The second article of the week was Deere’s earnings digest.

The results were better than expected, but I believe there was one specific quote that got the stock moving. I explain what this is and why it might be relevant for the investment thesis.

Without further ado, let’s see what the markets did this week.

Market Overview

Both indices were down this week, with the Nasdaq falling more than 2%:

I read Crossroads Capital’s Q2 2026 letter this week (written by my good friend Ryan O’Connor) and liked the following quote (among other things):

Nearly the entire first half’s returns showed up in roughly ten weeks off the March lows, and it went to whoever had simply waited.

None of this is a 2026 phenomenon. It’s the oldest asymmetry in the business, and it’s why waiting for clarity can be the most expensive trade there is: Clarity and the rally are the same event.

If you’ve followed my work for a while you’ll know that my investment philosophy has been shaped through the years (and I don’t anticipate it’ll be static going forward). The most significant change has been that I used to despise cyclicality, but now I actually strive to find it. Everything began when my good friend John Rotonti interviewed Jerome Dodson (founder of Parnassus Investments). The following quote from that interview stuck with me and shaped my investment philosophy:

Many of our biggest winners have been companies that operate in cyclical industries with secular growth drivers. When their business cycle turns down, investors become overly pessimistic and extrapolate the current negative conditions. They forget the cycle will eventually turn, throw in the towel on the secular growth drivers, and engage in panic selling, pushing the stock to bargain-basement levels. But eventually the cycle turns, and the stock soars higher. It’s difficult to have the courage to buy when everyone else is selling, and this has been an important part of our success.

I believe that the two quotes above are intrinsically related. Ryan claims that clarity and the rally are the same event, and I agree with him because the good returns are found when there are clouds, not when the sky is clear. I believe this type of scenario is much easier to find in the type of situations that Jerome Dodson describes in his quote: cyclical but secular industries where many investors remain on the sidelines waiting for an inflection. In many cases, people will be simply waiting on the sidelines for things to start working, hoping to hop on to the momentum trade (a phenomenon that has been shaping markets for a while).

We got a pretty good example of the dynamics described above this week. If you are not living under a rock, you might have seen that Moderna (MRNA) and Merck (MRK) released some pretty relevant news this week. Both companies announced positive results from their INTerpath-001 Phase III trial (albeit they did not share the data as such, which is an important caveat). This was relevant because it’s as close as humanity has gotten to a “ personalized cancer vaccine.” Now, there are certain caveats worth pointing out here because it’s more of an adjuvant treatment than a cure, but it seems to stop (in some cases) the cancer from coming back once the tumor has been removed. However you want to spin it, this is great news, especially since it somewhat demonstrated that there’s a potential mRNA platform to achieve personalized cancer treatments. Moderna’s shares rose considerably (+177%) on the headline, but what’s most interesting about this event is how it shifted the sentiment in the healthcare sector.

I’ve been writing for a while that sentiment across the healthcare sector had not been the best, driven by a violent post-pandemic boom and bust that had left the top lines of many companies starved for growth. Many investors had been waiting on the sidelines for “healthcare to start working” but little did they know that what got the healthcare sentiment shift started (still too soon to know if it’ll be sustainable) was an “unexpected” event that doesn’t even impact the top lines of these businesses (at least not immediately). The XLV ended this week up 4.5%, a significant contrast against down markets:

So, what is the bottom line of all of this? My reading is that timing inflections is impossible, but they eventually do happen for those willing to wait. There are very few people willing to hold something that’s “not working” (especially since there will be a lot of things that are working at any given point in time) and herein lies one’s opportunity. Now, granted, I don’t know if this will sustain or not, but the lesson doesn’t change: inflections eventually happen, we just don’t know when. Seems like a good idea to buy those companies in which the inflection is not priced in even though it’s a sure thing that it’ll happen. You might not get the highest IRRs in these situations, but you sure will get attractive risk-adjusted returns (which is what any investor should strive to find).

Something interesting that typically happens in financial markets is that a small inflection shifts sentiment a bit, then sentiment drives price, and price continues to drive sentiment in a self-reinforcing loop. This has happened time and time again (both to the upside and downside) and I don’t expect it to change anytime soon.

The industry map portrayed what I discussed above: a somewhat red market but with healthcare pretty green:

Source: Finviz

The fear and greed index retraced a bit and is now in neutral territory:

Source: CNN

Company-specific news