Corporate CEOs not buying their own stock? Ouch. Think market's going to tank further?
Corporate Insiders Aren’t Betting on a Market Rebound
Recent market declines have pushed stock prices lower, but executives and directors haven’t been scooping up their companies’ shares
Elon Musk last month pledged to pause his sales of Tesla shares for at least 18 to 24 months.
By Jack PitcherFollow
Jan. 5, 2023 7:00 am ET
U.S. stocks have been on sale of late, but corporate insiders aren’t finding many bargains.
Insider sentiment, measured by the trailing three-month average ratio of companies whose executives or directors have been buying stock versus selling, has dropped for six consecutive months, according to data from InsiderSentiment.com. That is the longest such decline in almost two years.
Insiders typically have greater insight on the business outlook, and the fact that they haven’t been scooping up their own stocks as the market tumbles suggests they believe that it might not have bottomed just yet. The S&P 500 has fallen 18% in the past year and last set a record a year ago.
Corporate insiders tend to time their transactions well, researchers say. They binged on shares of their own companies as markets sold off at the onset of the pandemic in March 2020 and were rewarded with a furious rally over the rest of that year. And they sold en masse in November 2021 when Federal Reserve Chairman Jerome Powell indicated the central bank would soon begin raising interest rates, and technology and other growth stocks hit a peak.
Last year, the ratio of insider buying to selling inched up in June when stocks hit their summer lows, but it has been trending downward ever since. If insiders remain on the sidelines, that could portend more trouble ahead for the stock market, strategists say.
“The thing that stands out right now is the lack of buying even though prices have come down so much,” said Nejat Seyhun, a finance professor at the University of Michigan who studies corporate-insider activity. “That’s kind of a warning.”
Tesla Inc. Chief Executive Elon Musk was by far the most prolific seller among insiders last year. His Tesla share sales totaled almost $23 billion—according to the Washington Service, a firm that provides insider-trading data and analysis—as he raised cash to help finance his $44 billion acquisition of Twitter Inc.
Mr. Musk pledged in December to pause his sales of Tesla shares for at least 18 to 24 months, in an effort to ease investor concerns that his purchase of Twitter was to the detriment of car maker. In the three weeks since Mr. Musk’s most recent share sales, which concluded Dec. 14, Tesla shares are down 28%. They declined 65% in 2022.
Twitter has been in turmoil since Elon Musk took over. To get a sense of what’s going on behind the scenes, The Wall Street Journal spoke with former Tesla and SpaceX employees to better understand how Musk leads companies. Illustration: Ryan Trefes
Other notable sales by insiders included those by billionaire Walmart Inc. heir Rob Walton, whose sales were made through the Walton Family Holdings Trust; former Constellation Brands Inc. Chief Executive Rob Sands; Airbnb Inc. co-founder Joe Gebbia; and Alphabet Inc. co-founders Larry Page and Sergey Brin, according to the Washington Service. All sold at least $895 million in stock over the course of 2022.
The largest seller among other CEOs was Gary Rollins of pest-control firm Rollins Inc. Mr. Rollins, who stepped down at year-end, sold $506 million in shares over the course of a year when his company’s stock greatly outperformed the S&P 500, rising 10%. Moderna Inc. CEO Stéphane Bancel followed, with $504 million of sales. Moderna shares dropped 29% last year.
Airbnb co-founder Joe Gebbia was among the largest insider stock sellers in the U.S. last year.
Dustin Moskovitz, co-founder and CEO of software developer Asana Inc., bucked the trend, leading all insider buyers with $921 million in purchases over the course of the year. Mr. Moskovitz said on a September earnings call that he was investing in Asana because he believes “the market opportunity is enormous” for the firm’s work productivity software.
Among the few sectors seeing increased insider buying activity are the small-cap healthcare, industrials and consumer-staples groups, according to InsiderSentiment.com’s analysis. Those segments are traditionally considered defensive sectors that can hold up in a recession.
Many insider sales are made on predetermined schedules to avoid the appearance of impropriety, and insider selling typically dwarfs buying because many executives are compensated with equity in their companies. Still, the comparative lack of buying right now stands out, strategists say, especially as traditional valuation measures show U.S. stocks getting cheaper.
The S&P 500 currently trades around 17.9 times earnings over the past 12 months, according to FactSet. That is down from a multiple of 25 a year ago and the five-year average of about 23.
In both November and December, shares of almost twice as many companies were sold by insiders as were bought, in line with the average since 2017, according to data from the Washington Service. October, on the other hand, was an outlier: Insiders sold shares in 601 companies and bought shares in just 219.
Insider selling over those three months totaled $17.1 billion, compared with purchases of $1.3 billion. Analysts tend to look more closely at the number of buyers and sellers than dollar amounts to deduce sentiment trends, because a few large sellers can have an outsize impact.
The forces keeping insiders from buying now are likely similar to what is keeping any other investors out of the market, said Mark Hamilton, chief investment officer at Hirtle, Callaghan & Co.
Many investors are hesitant to call a market bottom while the Federal Reserve continues raising interest rates to cool a hot economy. Like many corporate insiders, institutional investors have largely bailed on stocks and turned to more-defensive investments.
“Sentiment generally is negative, and insiders are no less subject to that,” Mr. Hamilton said. “People have suffered losses, and the natural psychology kicks in that makes them reluctant to buy when the news is bad and prices have gotten cheap.”
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