Medical device stocks of all types were pummeled over the past week as investors tried to calculate the ripple effects of latest weight reduction drugs. It wasn’t the first rout in the sector — the pressure has continued for several months. The fear has been that at any time when you might have a big group of consumers changing their habits, that will affect the kinds of products they buy and the services they will need. While the use of the GLP-1 drugs to treat obesity continues to be very limited at this point, it is predicted to soar to a $100 billion market or more, by some estimates. That is because the potential market is vast given the prevalence of obesity and obese in the U.S., where greater than 70% of the population has one in all those two conditions. Also, ongoing studies have shown these drugs could produce other useful effects corresponding to reducing heart and kidney disease. Still, the danger for investors is that the assumptions being made lack nuance, and the bet is fallacious. One great example is knee replacements. Judging by the momentum in the stocks, investors have been betting that as people shed pounds, there will be a decline in knee alternative surgery. The American College of Rheumatology estimates 790,000 total knee replacements are performed in the U.S. every year. Being obese or obese may put an individual at greater risk for needing surgery, but other aspects are also at play. A case for more knee surgery? “We have had questions on the potential of dramatic weight reduction reducing demand for knee replacements by relieving stress on the joints,” Benchmark analyst Bill Sutherland wrote in a research note Thursday. “The early anecdotal evidence actually suggests that the opposite could occur as previously very obese individuals overexert, creating an array of [musculoskeletal] injuries.” While GLP-1 medications are helpful in aiding weight reduction by suppressing appetite and increasing feelings of fullness, to achieve success, patients are advised to adopt healthy habits, including exercise. This is very true if patients need to wean themselves off the medication after losing a few pounds. Many people have regained the weight they lost after they stop the medication unless they are in a position to make sufficient lifestyle adjustments. Piper Sandler analyst Matt O’Brien recently met with executives from Stryker , who said the number of huge joint surgeries isn’t declining in consequence of GLP-1 drugs corresponding to Novo Nordisk’s Ozempic and Wegovy and Eli Lilly’s Mounjaro, they usually don’t expect it to. “They were emphatic that they are not seeing any impact from these drugs and that the primary driver of joint alternative isn’t weight but motion and the eventual bone-on-bone pain brought on by osteoarthritis (lack of cartilage),” O’Brien said. “We agree with this view and imagine any concerns here for the orthopedic corporations are overblown…” He also doubts weight reduction will increase the number of people that receive joint alternative in a meaningful way. Stryker shares are still up 5% in 2023, but the stock has fallen greater than 15% since June 30, when the sentiment shifted against medical device stocks. O’Brien rates the stock obese and sees shares heading to $310, or about 20% above where shares closed Friday. SYK 3M mountain Stryker shares over the past three months Do the facts matter? But we could also be at the point where the facts don’t matter as much as the sentiment. “… [T]here is considerable debate amongst investors as as to if fundamentals even matter this qtr with the GLP-1 overhang limiting investor willingness to purchase MedTech stocks broadly,” said Truist analyst Richard Newitter in a research note Thursday. “For our part, we proceed to imagine the dramatic GLP1-driven sector pullback is probably going overdone and that ‘narrative’ (i.e. cannot disprove the worst-case long-term negative) is driving indiscriminate selling more so than tangible (knowable) fundamental impact. However it’s hard to say when/if the GLP-1 overhang will subside,” Newitter said. Based on Truist’s polling of fifty hospital administrators, the analyst expects the third quarter will show a slowing pace of knee alternative surgeries in comparison with the first half of 2023. SGRY 3M mountain Surgery Partners shares over the past three months There are other headwinds as well for stocks corresponding to Surgery Partners , a number one operator of surgical facilities. Benchmark’s Sutherland reiterated his buy rating on the stock, which has fallen 48% since June 30. Along with the overhang from GLP-1 weight reduction medications, the company has been hurt by pressure on hospital stocks in the wake of the Kaiser Permanente strike . That labor motion, in addition to a possible strike by Tenet Healthcare staff, could push worker pay higher. Indeed, Kaiser reached a tentative labor agreement with medical examiners Friday, and the deal includes a rise in wages . “Surgery Partners stays immune from these labor issues,” Sutherland said. His price goal of $50 suggests Surgery Partners’ stock could greater than double from Friday’s close. — CNBC’s Michael Bloom contributed to this report.