While the market steadily rose throughout June and July, corporate insiders were growing less enthusiastic about their stocks.
Less than a third of S&P 500 companies saw insiders purchase stock in their own company in July.
That is the lowest figure since 2018. Moreover, the ratio of buys to sells for insiders fell to almost half of its longer-term average and now sits at its second-lowest reading in four years.
Source: Bloomberg
Per Bloomberg’s article “Corporate Insiders Were Dumping Stocks Into July’s Record Rally“:
“Corporate executives are behaving a lot like institutional investors right now: cautious, conservative, and valuation-sensitive,” said Dave Mazza, chief executive officer of Roundhill Investments.
“The people that know the most about companies are telling you that much of the good news is discounted,”
The logic in following the actions of corporate insiders is that they have more knowledge about their companies than other investors.
Thus, their cumulative actions indicate their valuation view is different from that of the optimistic market.
While the recent bout of insider selling and lack of buying is a warning, it’s not a good timing tool.
Bottom line: This data, along with high valuations, a weakening economy, and overbought technicals, provides a good reason for caution.
However, we should not overreact.
Insiders do have more knowledge, but their collective actions have proven at times to be poor indicators of the future.
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