Daily Commentary

MarketMinder’s View: As this research piece mentions several specific companies, please note MarketMinder doesn’t make individual security recommendations, and our interest is in the broader theme only. Whenever corporate insiders (e.g., an officer, director, 10% stockholder, etc.) decide to buy or sell their own stock, many investors presume they are acting on some foolproof forecast of the company’s future, good or bad. So if insiders are buying, it must be a good time to buy indeed. And if they are selling, it must be time for Joe and Jane Public to scram. Now, setting aside the fact that SEC-defined insiders can purchase company stock only during designated window periods and have to go through several regulatory processes before they can buy, does insider buying actually say anything about the stock’s future direction? This thorough analysis found mixed results. Based on 1,400 publicly disclosed insider purchases at S&P 500 companies over the past five years, “Most purchases took place after the share price had declined over the previous 30 days, often after disappointing results or other negative news. In such instances, executives and directors often buy shares in clusters to amplify their vote of confidence in the strategy—as they did in a quarter of the trades analyzed, according to the Verity data. The move generally works—to a point. Share prices climbed a median 2% a month after the insider purchases, but their recoveries tended to taper off after that. Just 15% fully rebounded from where they had fallen in the 30 days before the share purchase.” Now, the timeframes used here are very short—we don’t recommend investors focus on 30-day performance windows—but the broader point still stands: Insiders don’t have the inside track on a stock price’s future direction. And we would add that their decisions are all widely known and priced in. For more on this topic, see our 2020 commentary, “Don’t Let Insider Sales Lead You Astray.”

MarketMinder’s View: Even though the partial government shutdown ended on Tuesday, it still forced the Bureau of Labor Statistics (BLS) to delay its January jobs report until Wednesday next week (and January inflation data, originally set for release next Wednesday, will come out a week from tomorrow). While you could just be normal, shrug your shoulders and wait a couple days for BLS reports, some experts inevitably choose to dig into the myriad datasets from private sources to get a read on the economy. There isn’t anything wrong with that—research outfits have been collecting and analyzing their own information to help them do business for eons—but recent government shutdowns’ delaying widely watched jobs, inflation and even GDP releases have spurred chatter about whether alternative data should receive more prominence. Now, we love data, including private sector-produced data! But this framework overrates what any dataset can tell you. Consider a few of the pros and cons with private data laid out here. “Private data can be more timely than government data, which is helpful when shocks are hitting the economy. During the Covid-19 pandemic, economists turned to private sources, such as restaurant-seating data from OpenTable and time-clock figures from the workplace-management site Homebase to track the impact of the virus and social-distancing measures.” The downside, though, is that many of these data are niche, focus on a tiny segment of the economy and lack a long history to use for comparison purposes. For instance, restaurant reservation information won’t tell you how much diners are spending. Some aren’t seasonally or inflation-adjusted. And as a private equity firm executive interviewed here notes, their metrics are focused on understanding investment opportunities—not about tracking macroeconomic trends. Our advice? Don’t rely on any one measure to tell you everything about something as complex as “the economy.” For more, see last August’s commentary, “Looking Beyond the Data Debate.”

MarketMinder’s View: The Bank of England (BoE) held its main interest rate at 3.75% today, though the decision to do so was close (a 5:4 split among the Monetary Policy Committee [MPC], with Governor Andrew Bailey casting the deciding vote). This piece illuminates MPC members’ reasoning and, in that sense, is interesting. But we think it goes too far in suggesting the MPC made a mistake by not cutting rates and making loans and mortgages a little cheaper, thereby squeezing UK businesses and households. We think that vastly overstates how monetary policy works in general—it is a blunt tool that mostly influences money supply growth, which affects the broader economy at an undetermined lag. Now, it is true that in the UK, the abundance of floating-rate loans means rate cuts get passed to borrowers pretty quickly, giving households more financial wiggle room. But the broader effects are limited, and as far as cultivating new investment—which drives economic growth—a rate cut wasn’t going to ease credit access overnight. That misperception aside, the analysis here breezes over some positive developments while focusing on the negatives. For instance, “The monetary report says inflation is going to tumble by one percentage point by April compared with a forecast in November. That means the Bank will reach its target of 2% earlier than expected, falling into line with France, Germany and the EU average.” Take all forecasts with a grain of salt, but that would be good news! Yet the article dismisses that projected improvement and focuses on a higher-than-forecast unemployment rate and downticks in projected GDP growth. We aren’t pounding the table for the UK economy, but things aren’t as poor as many experts think—more evidence that the proverbial wall of worry is higher overseas.