Geopolitical unrest drives the oil price, insider trading sends negative signals.

Chart of the week

The main reason why the stock market has fallen in the last week is geopolitical unrest in the Middle East. After Israel attacked the Iranian embassy in Damascus and killed two senior generals of the Revolutionary Guard, Iran announced a retaliatory action. The stock markets came under pressure due to the great uncertainty as to how Iran would react.

Iran's direct attack on Israel broke a taboo. Until now, Iran has only ever reacted by proxy but never directly itself. However, the attack did not cause any major damage. The big question now is whether Israel will also attack Iran directly.
Why this is important

As can be seen in the map above, Iran has no direct border connection with Israel. There are 2000 kilometers between the two countries. Both sides have only a few weapons systems to bridge this distance. That is why Iran acts with its proxies, which it supports massively with money and weapons. These are Hamas, Hezbollah and the Houthi.

With its allies, Iran has the possibility of blocking or massively obstructing the trade route with the Suez Canal or forcing Israel into a multi-front war.
The phrase "the stock market is falling due to geopolitical unrest" is always easy to say. But why actually? It sounds a bit heartless, but a war in Gaza is not going to affect a global corporation like Coca Cola or Microsoft. Yet both shares have fallen over the past week.
The reason why stock markets around the world are reacting is the impact on the price of oil. The main elixir of the economy.

The chart shows the oil price since 2000. Crises repeatedly trigger strong movements in the oil price. The current crisis is now causing the price to break out of the falling price channel (marked in green) and move upwards.

This can lead to higher inflation worldwide and slow down the global economy. Interest rate cuts in the USA and Europe would then be off the table. A recession in the USA would also be a possible consequence. This in turn would have a major impact on the US elections in November. No US president has ever been re-elected when the US economy was in recession. Biden's fate as US president is therefore closely linked to the current crisis in the Middle East.

The chart shows the forecast for 2024 for GDP growth in various countries/regions. The forecast for the USA currently still looks excellent. Lower growth (but still growth) is expected in all other countries/regions.

A strong oil price could destroy this positive forecast. So there is currently a lot at stake. This nervousness is currently causing increased volatility on the stock markets.

Insider trading sends negative signals
Directors, officers and significant shareholders of a listed company (5% or more of a company's shares) are subject to a number of reporting requirements and trading restrictions in relation to their ownership and transactions in the company's securities. Compliance with these rules requires strict procedures for both the company and its insiders.

One of the rules is that such insiders must report their transactions. These are collected and published in a database.

Investors can draw important conclusions from this data:

Insider Sell:
Weak signal. Especially large owners of companies, such as Elon Musk, often have relatively small salaries and therefore have to sell shares when making large purchases (house, etc) or tax bills.

The chart shows that the stock market often falls before Tax Day, i.e. the day on which all Americans have to pay their taxes. This is often related to sales by "insiders".

Insider buying:
That's his very strong signal. Insiders often have too much invested, relatively speaking, in their own company's stock. This can be from 50-90% of their assets. In order to diversify, they should therefore reduce their holdings. If such insiders buy more shares, this is a very strong signal to other investors to do the same. They consider their shares to be undervalued.
The following chart shows the number of purchases by insiders minus the number of sales:

This index has fallen to a historic low of the last 10 years. This is due to relatively strong selling, but also to the fact that almost no insiders are currently buying. Many company bosses seem to be of the opinion that their shares are already proudly valued and do not see any major upside potential for "their" shares in the coming weeks and months.

After the strong rise on the stock markets since December 2023, this is understandable. It is therefore time to keep the cash holdings in the portfolio rather high in order to enter more favorably in the event of setbacks.