Current Insider Trading Indicators and Thoughts on the Economy

Staying afloat on market happenings these days means we are learning that bad news is bad news, while good news is also bad news. The stock market just can't win for losing, it seems.  

Inflation slowed down considerably over the past month. Most recently, November headline PCE inflation came in at 5.5%, down from 6%, while the November core PCE is at 4.7%, down from 5%. Additionally, Retail sales are off 0.6% in November. These are considered bad news for the stock market since they indicate we may be headed toward a recession.  

On the other hand, there were also some positive readings. Average earnings were up 0.4% in November, a strong result. Also, revised GDP growth came in at 3.2%, up from 2.9%. These are also considered bad news for the stock market since it means the Fed will have to keep raising interest rates to break the back of the labor market. Or so the thinking goes.  

These are not the only conflicting signals out there these days. We wanted to share a brief message touching on a couple of things we've noticed about the economy, specifically with insights from the insider sentiment perspective. We hope you find it helpful.

Insider Trading Indicators - Retail

One sign of the ensuing slowdown is coming from consumer retail, as November retail sales fell 0.6% from October for the biggest monthly decline of the year. Historically consumer retail sales has been a lagging recession indicator however, which you can see from the graph below showing clothing retail sales as an example (as percent changes from a year ago, with recessions in grey). The declines in the retail sales typically don't commence until well after the recession has set in.

This being the case, the fact that retail sales are slowing down this early is concerning, especially if this trend continues. 

We noted in a blog post that Ulta Beauty is a big exception to this trend, beating analysts expectations and achieving an all time high stock price earlier this month. However, some Ulta insiders are currently selling, and we did see an interesting pattern in their trades that suggests there may be a brief correction in Ulta's stock price coming up. You can check out that blog post here.

While Ulta may be bucking the trend of otherwise dullened retail activity, its insiders are acting in line with their peers in the industry. Insiders are already bearish on large-cap Consumer Discretionary firms, which you can see below. Current net insider buying figures are coming in well below the 10-year average for this segment.

Insider Trading Indicators - Big Tech Layoffs

As you likely have heard, several big tech companies have laid off huge numbers of employees this summer and fall. We even called out Meta CEO Mark Zuckerberg for it in a blog post - pointing out that his excuse for laying off 11,000 employees didn't match up with the story told by his insider trading activity. The table below showing big tech layoffs is from layoffs.fyi. 

As far as big tech goes as a broader macroeconomic indicator, we are not as concerned given the headcount bloat inside some of these large companies. Moreover, the overall employment numbers are still very strong, with 263,000 new jobs added in November. 

However, these companies tend to give generous severance and so laid-off employees don't enter the official statistics until months later, creating a lag effect, so we are keeping an eye out to see if big tech layoffs accelerate. 

Additionally, insiders are relatively neutral on big tech right now. You can see this in the graph showing insider sentiment for large-cap Information Technology firms, below:

If insiders pivot strongly away from Tech, however, and start to send a bail signal, that could be a sign of more layoffs to come and additional falls in the prices of Tech stocks. 

This content originally appeared as an email to newsletter subscribers. To receive emails like this before they are published, you can sign up for the free newsletter here. If you found the above content informative, you may be interested in the new service launched in collaboration with University of Michigan Ross School of Business Professor Nejat Seyhun. Intended for money managers, day traders, and investors of any size, insidersentiment.com tracks aggregated insider trading indicators for a variety of investment styles and can help you stay ahead of the market.