Two of the main arguments against stocks right now are that the market has gone too far too fast, and insiders are selling. When you look past the headlines, however, both arguments lose much of their impact.
Regarding the market going too far too fast, there is no denying that the S&P 500 is up big (32%) from its March 9th closing low, which is certainly out of the ordinary. However, March 9th is just one point in time. If we expand our window one month further to February 9th, the S&P 500's rally shrinks to an ordinary 2.7%. Furthermore, on a year to date basis, the S&P 500 is actually down 1.1%. Is a loss of 1% too far too fast?
Over the last several days, there have been multiple reports highlighting the high level of selling by insiders. This is interpreted as a signal that corporate executives don't think the move in equities is justified by fundamentals. Before reading too much into these figures, however, investors should be aware that a negative outlook isn't the only reason insiders sell stock (diversification, raising cash, etc...). And even if it is the reason, we would note that these are the same insiders who were 'piling into' company stock less than two months before the S&P 500's peak in August 2007, and then again in March 2008 just as the recession was in its early stages. If they didn't see the downturn coming, what makes people think they'll see the upturn?
"...However, March 9th is just one point in time. If we expand our window one month further to February 9th, the S&P 500's rally shrinks to an ordinary 2.7%. Furthermore, on a year to date basis, the S&P 500 is actually down 1.1%. Is a loss of 1% too far too fast?"
That is the strangest form of argument, logic. Quite frankly, it's not worthy of your normal quality of stellar work. Ghostwriter ??
Posted by: dave | June 23, 2009 at 07:30 PM