Company Insiders Aren't Buying Their Own Stocks Amid Market Spasms

Company Insiders Aren't Buying Their Own Stocks Amid Market Spasms

Equity bulls looking for a bottom to this year’s broad selloff see plenty of hopeful signs, from extreme oversold market conditions to souring investor sentiment. Yet one factor that’s reliably foretold an end to past routs is missing: a corporate insider buying spree.   

Executives in charge of U.S. companies, whose purchases correctly signaled the bear-market bottom in March 2020, are still largely shying away. 

Only about 1,000 corporate executives and officers have snapped up shares of their own firms this year, trailing the number of insider sellers by a margin of 1-to-3, according to data compiled by the Washington Service. While the ratio is in line with the average of the past three years, it’s a far cry from a reading of 2.2-to-1 seen as the pandemic slammed stocks two years ago. 

Company Insiders Aren't Buying Their Own Stocks Amid Market Spasms

Granted, the current carnage in the S&P 500 doesn’t come close to that of the pandemic selloff. Yet the benchmark’s current peak-to-trough decline of 12% is similar to market retrenchments in 2015 and 2016, when corporate insiders were quick to scoop up their own shares.

With the war in Ukraine threatening the global recovery and the Federal Reserve poised to raise interest rates for the first time in three years, it’s understandable that business leaders might be hesitant to dive into a market where stocks lost as much as $7 trillion in values in two months. 

“Why insider buying isn’t strong typically indicates less confidence in outlooks, which we heard some of over this past earnings season, at least relative to market expectations,” said Jason Brady, president and chief executive officer of Thornburg Investment Management. With rates heading higher, “the ability to borrow to buy is lower. Valuations in the U.S. are still elevated, so I don’t know that anyone believes their stock is particularly cheap.”

Alongside the lack of insider buying, companies also appear to be reluctant to step up their share buybacks at the moment, according to Bank of America Corp.’s client flows. Based on data compiled by the firm’s research team, share repurchases this year have amounted to 0.05% of S&P 500’s total market capitalization. While that’s up from a year ago, it trails the pre-pandemic level seen at this same point in 2019.  

The absence is a departure from the past decade, when companies have repeatedly acted as a key ally to equity bulls. Just last December, when stocks suffered one of 2021’s worst declines, BofA’s buyback desk saw orders doubling. 

It’s not that companies are suddenly pulling the plug on buybacks. On the contrary, companies have announced plans to purchase almost $240 billion of their own shares since January, 10% above the intended total at this time last year, data compiled by Birinyi Associates show.  

Company Insiders Aren't Buying Their Own Stocks Amid Market Spasms

“People are distracted, but they’re opportunistic at the same time,” said Bryce Doty, senior portfolio manager at Sit Investments Associates. “So with stock prices dipping -- being down -- they still believe in the long-term viability of the company. But you have these overarching issues that are going to continue to keep the activity depressed a bit. And maybe they’re waiting for another downturn in the equity market.”

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