US market approaching fair-value territory

March 19th, 2020

On Wednesday, investors were watching to see if the S&P 500 December 2018 low of 2,351 could serve as a solid support level for stocks. At least for the time being, that level has held on a closing basis. While the S&P 500 traded below that level intraday, it has managed to close above it so far this month. However, it is too early to declare victory. Before we can believe a strong base of support exists at the 2018 Christmas Eve low, we need to see a clear peak in our US Sentiment Indicator. Such a peak would indicate peak insider buying which often takes place near share price lows.

There are two signs that we are getting close to putting in a fair-value floor where stocks are adequately pricing in COVID-19 related risk. First, while our US Indicator has not peaked, it is now at 88% which is higher than it reached in December 2018. That suggests stock prices already have adjusted for more risk than they did on Christmas Eve 2018. At 88%, there are 88 stocks with key insider buying for every 100 with selling. It is rare for the US broad market to move above 100%. If stocks continue to fall, we would not be surprised to see it reach that level before peaking.

Second, our US Banks Indicator has continued to soar and is well above 300% and is trying to peak. This is very encouraging and comes as tentative signs emerge that the US bond market bull run may have finally run out of steam, at least for a short period of time. A steepening of the yield curve on the back of higher Treasury yields in conjunction with a bottoming of bank stocks would be a nice indication that investors are starting to look beyond the coronavirus crisis. We are not there yet, but appear to be very close.

It is also important to keep in mind that our insider indicator signals are coincident or slightly lagging. As such, they do not forecast a bottom. Instead, they can serve as a signal that a floor may have been established. Events are moving fast, and if we get such a signal over the next few days, we will provide an update in our Canadian or US market reports.

Meanwhile, we are approaching a fork in the road for Western policymakers. Will they succeed in delivering a G-economy where the government adopts a whatever-it-takes approach and spends big or will they tread carefully and risk a D-economy characterized by disinflation or deflation? The outcome will have a big implication for asset markets, with the G-economy favouring stocks over bonds. Precious metals as a group are also likely to enjoy more vitality in a G-economy world.

Top 3 Gainers Last Week

Company NameStock Symbol1 Week %
Clearwater SeafoodsCLR-5.6

Top 3 Losers Last Week

Company NameStock Symbol1 Week %
Whitecap ResourcesWCP-61.1
Kelt ExplorationKEL-49.4
Cenovus EnergyCVE-47.3

Returns are as of the last trading day of the previous week.

Featured Clip

Insider of the Week

Bank of Montreal (BMO) Director Don M. Wilson III

Mr. Wilson spent more than $1 million picking up BMO shares on Monday as the stock was tumbling and threatening to test last week's lows. He is no ordinary insider as he was the former Chief Risk Officer at JP Morgan Chase & Co. (JPM*US).

INK Canadian Insider Index

1 Year Total Return Performance

Historical Performance

Annualized Total Return as of March 19, 2020 04:49 pm
1 Year -36.25%
3 Years -13.40%
5 Years -6.12%
10 Years 2.14%

5 Year Total Return Performance

The INK Canadian Insider Index is used by the Horizons Cdn Insider Index ETF (HII), a 2017 and 2018 Fundata Fundgrade A+ ® award winner.

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