IVOV - CDT Insider Sentiment Ratio July 2023: Low Sentiment

2023-08-05 07:30:00 ET

Summary

• Insiders have not endorsed this summer’s market rally.
• During the last 5 weeks, insider sentiment has trended at year-to-date lows, while at the same time, the stock market is flirting with record-high levels.
• Stock market valuations and risk-free rates are concurrently reaching recent record highs.

Buckle Up

Where have all the insiders gone? Our guess, they are probably buying bonds. As indicated by the chart above, insiders have not endorsed this summer’s market rally. In fact, during the last 5 weeks, insider sentiment has trended at year-to-date lows, while at the same time, the stock market is flirting with record-high levels. While we do not know for sure if insiders are, in fact, embracing the surety of bonds in their personal portfolios, we do know that they are not buying their stocks. But if they are buying bonds, who could blame them? All joking aside, the tax-advantaged 5.5%, 6-month U.S. Treasury bill looks like a great deal, especially when compared to a frothy stock market. How stretched are market valuations? Trading at 22x forward earnings, valuations are stretched like a taut rubber band between your fingers - watch out for that snapback. In that context, there is something very unique going on in financial markets, which most business textbooks would suggest is close to impossible. Right now, stock market valuations and risk-free rates are concurrently reaching recent record highs. This is abnormal, to say the least, since stock prices and bond yields usually do not hold hands in the same direction. Yet, just recently, the 10-year Treasury has jumped above the +4% level and the stock market has moved ever higher; the S&P 500 total return registered +3.2% in July. Additionally, with headline inflation now running at 3%, the even greater appeal of a guaranteed 5.5% Treasury is rather obvious.

With valuations high, bond yields high and insider sentiment low, we are keeping the fasten your seatbelt sign firmly in the on position.

Expect some turbulence ahead.

How it Works

Objective:

Predictive model that measures the historical relationship between insider sentiment and the future probability of downside volatility (risk).

Insider Trading Activity:

Purchase activity of an insider’s own stock filtered by proprietary parameters to scrub noisy data.

Insight:

Executive-level insider sentiment is an indicator of near-term financial market risk.

- Low executive sentiment suggests a high level of risk

- High executive sentiment suggests a low level of risk

Scale: A ratio of current insider trading activity in relation to historical patterns

- (0 to ?) with a historical median measure of 1

- Below 1 implies an above normal level of risk

- Above 1 implies a below normal level of risk

Frequency:

The measure is updated daily and historically been subject to swift and possibly extreme shifts.

*This webpage is updated monthly and provides just a snapshot of the most recent month-end.

Disclosures

This presentation does not constitute investment advice or a recommendation. The publisher of this report, CDT Capital Management, LLC (“CDT”) is not a registered investment advisor. Additionally, the presentation does not constitute an offer to sell nor the solicitation of an offer to buy interests in CDT’s advised fund, CDT Capital VNAV, LLC (“The Fund”) or related entities and may not be relied upon in connection with the purchase or sale of any security. Any offer or solicitation of an offer to buy an interest in the Fund or related entities will only be made by means of delivery of a detailed Term Sheet, Amended and Restated Limited Liability Company Agreement and Subscription Agreement, which collectively contain a description of the material terms (including, without limitation, risk factors, conflicts of interest and fees and charges) relating to such investment and only in those jurisdictions where permitted by applicable law. You are cautioned against using this information as the basis for making a decision to purchase any security.

Certain information, opinions and statistical data relating to the industry and general market trends and conditions contained in this presentation were obtained or derived from third-party sources believed to be reliable, but CDT or related entities make any representation that such information is accurate or complete. You should not rely on this presentation as the basis upon which to make any investment decision. To the extent that you rely on this presentation in connection with any investment decision, you do so at your own risk. This presentation does not purport to be complete on any topic addressed. The information in this presentation is provided to you as of the date(s) indicated, and CDT intends to update the information after its distribution, even in the event that the information becomes materially inaccurate. Certain information contained in this presentation includes calculations or figures that have been prepared internally and have not been audited or verified by a third party. Use of different methods for preparing, calculating or presenting information may lead to different results, and such differences may be material.

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