MW How to know if a CEO shakeup is a 'buy' signal for a stock

By Mark Thompson

Be skeptical if the selection seems status quo when the company needs a new direction

Stock prices move on the narrative first and then on the numbers.

Two blue-chip retailers promoted insiders to the chief executive's office - and Wall Street delivered opposite verdicts within hours.

When Nike $(NKE)$ elevated longtime company veteran Elliott Hill to CEO in September 2024, shares jumped in after-hours trading as investors bet on a "return to roots" in performance product and wholesale relationships.

By contrast, last August, when Target's (TGT) board named a longserving company executive, Chief Operating Officer Michael Fiddelke, as its next CEO, the stock slid as investors signaled they wanted a bolder strategy shift to counter Amazon (AMZN) and Walmart $(WMT)$. Fiddelke is slated to become CEO in February. Target shares are down about 4% since the Aug. 20 announcement.

The distinction in the shareholder response wasn't simply insider versus outsider. It was what kind of insider - and the company's future strategy - investors inferred from the appointment press release and day-one commentary.

Nike's choice telegraphed a pivot back to what historically worked for the brand - sport performance, innovation and wholesale-channel repair - after a contentious stretch emphasizing direct-to-consumer sales. Investors saw continuity with a course correction, not more of the same.

Target's move, announced as the company faced stiff competition and mixed operating trends, looked like more of the same in areas that shareholders believed needed sharper change. The market voted immediately.

What happened to the stocks after the headlines faded? For Nike, the initial pop didn't fully stick. The shares spiked on the news and later drifted back below the pre-announcement territory as execution questions and demand normalization set in. So far this year, Nike shares have lost close to 15%.

Target shares dropped on the new CEO announcement and remained below the prior-day close for a time despite management's growth-oriented rhetoric. That isn't a verdict on the CEOs so much as a reminder that stock prices move on narrative first and on numbers later.

Insider vs. outsider matters less than whether the board is signaling a mandate for evolution or revolution.

For investors wanting a disciplined trading strategy for companies with leadership changes, here's a practical framework:

-- Decode the insider signal -what kind of continuity? In Nike's case, a veteran associated with core product and sports execution felt like a reset. In Target's case, the internal promotion amid competitive pressure read as insufficient disruption. The question is not, "Is this person internal?" but, "What strategy does this promotion imply?"

-- Map the pivot, not the résumé: On day one, focus on what the pick implies for the bear case. Does the company explicitly commit to reversing disputed choices - channel mix, inventory discipline, pricing cadence, category focus - or does it default to generalities about innovation and transformation? Nike's early messaging and outside analysis emphasized repairing wholesale ties and refocusing on performance lines. The initial rally reflected concrete levers that investors recognized. Target's language seemed geared toward growth but left some investors unconvinced that the company could deliver the sharp changes they sought in merchandising, price perception and customer traffic.

-- Anchor to the pre-announcement close and be patient: The prior share-price close is your mark. Emotional gaps often retrace unless near-term fundamentals confirm the thesis within a quarter or two. Use that reference level to size positions, set alerts and plan staged entries. If shares spike without a hard plan, consider that the euphoria will fade. If the stock drops on what seems a credible pivot, consider buying in over time.

-- Watch the first guidance reset or investor day. New CEOs commonly use the first formal investor update to rebase expectations and publish measurable key performance indicators. If the plan directly addresses the bear case - unit economics, channel mix, inventory turns, category focus - conviction can build. If not, first-day pops fade and selloffs can deepen. The first 180 days are crucial - where the narrative meets the numbers.

-- Read the board's signal. Insider vs. outsider matters less than whether the board is signaling a mandate for evolution or revolution. Transition timing, whether the outgoing CEO becomes executive chair, and the emphasis on continuity versus transformation are all tells. Markets react not to résumés in isolation, but to what owners believe the board wants done - and how soon.

While boards run the process, shareholders ultimately decide whether a new chief is the right steward.

These patterns echo a broader reality. While boards run the process, shareholders ultimately decide whether a new chief is the right steward - and they express that view instantly in the stock price. The day a CEO is named, shareholders drive the price, broadcasting expectations with their money. For aspiring CEOs, the lesson is straightforward: Your candidacy depends on what your shareholders value. Investor fluency is part of the job audition long before the board vote.

If you're investing in companies with new CEOs, start by placing the appointment on a simple matrix: continuity that restores brand strengths versus continuity that maintains an ailing playbook. Listen for operational levers that directly attack the bear case. Use the pre-announcement close as your anchor and let the first guidance reset be your confirmation or your stop.

Above all, remember that insider promotions are not a one-size-fits-all strategy. Favor insider choices that signal a strategic reset toward the company's competitive core, and be skeptical when the insider selection looks status quo when the status quo is losing.

Mark Thompson is chairman of the Chief Executive Alliance and former chief executive of the CEO Academy. He is the author, with Byron Loflin, of CEO Ready: What You Need to Know to Earn the Job - and Keep the Job (Harvard Business Review Press, November 2025).

More: Running shoes and retail gains are helping Nike's turnaround - and cranking up the heat on rivals

Also read: Target might be cutting jobs, but its 'kitchen sink' moment hasn't hit yet

-Mark Thompson

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November 03, 2025 09:08 ET (14:08 GMT)

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