Corporate executives are buying their own firms' shares at the slowest pace in at least 29 years, the latest sign of uncertainty as the bull market in U.S. stocks enters its ninth year.
Share purchases and sales by executives are parsed by investors searching for signals about what insiders expect from the market. Sales can show wariness about valuations, while purchases can signal confidence that more gains lie ahead.
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Insider buyers have been scant. There were a total of 279 insider buyers in January, the lowest number going back to 1988, according to the Washington Service, a provider of insider-trading data and analytics.
Meanwhile, the number of sellers has been above average, pushing a ratio of buyers to sellers in February to its lowest since 1988.
Insider caution about buying stocks comes with the S&P 500 (.SPX) near a high and after the index has more than tripled since bottoming during the financial crisis on March 9, 2009.
While many investors expect corporate earnings to pick up in coming quarters, reflecting the continuing U.S. economic recovery and Trump administration tax-cut and deregulatory plans, the strong market gains mean that investors are paying more now for expected corporate earnings than at any point in over a decade.
The price-to-earnings ratio of the S&P 500 based on analyst forecasts for the next year is near 17.7, the highest since 2004, according to FactSet.
At the same time, other technical indicators appear more hopeful for further stock gains. Short positions across stocks, exchange-traded funds and equity futures — often a proxy for bearish hedge-fund activity — last week fell to near their lowest levels in 10 years, according to Dubravko Lakos-Bujas, U.S. equity strategist at J.P. Morgan Chase & Co.
Because corporate insiders may have more insight than the typical market participant on a firm's prospects, these trends are followed more closely than most.
Morgan Stanley's (MS) James Gorman sold shares for the first time since becoming chief executive in 2010 just days after the presidential election, exercising options that would have expired in January 2018 on 200,000 Morgan Stanley shares. He sold an additional 100,000 shares later that month, which he bought in 2011 and had planned to sell once they had doubled in price, according to a person familiar with his thinking. In January, he exercised options on 285,000 shares that also would have expired next year.
This year, executives at regional banks whose stocks have soared since the U.S. presidential election are among the biggest insider sellers. BB&T Corp. (BBT) has 18 insider sellers so far in 2017, totaling $55 million in sales, according to the Washington Service. The bulk of this sale was by Stephen Williams, a member of the bank's board, on behalf of his late father's estate accounts, according to a spokesman.
For more than three decades, analysts at Leuthold Group, an investment firm, have tracked large insider sales to purchases in proportion to the number of stocks in the marketplace. The measure has been steadily rising over the past four weeks to levels that are alarming if they persist, said Doug Ramsey, the firm's chief investment officer.
"Attitudes respond to what the market has done recently," Mr. Ramsey said. "Sentiment is catching up to the market action, and that's kind of worrying."
Insider selling is generating a "sell" signal to analysts at Ned Davis Research Inc., a research firm that uses technical analysis. Insider selling at firms whose shares trade on the New York Stock Exchange, Nasdaq Stock Market and American Stock Exchange triggered its in-house bearish signal for 11 straight weeks, the longest stretch since 2014.
"The fact that we've gotten more selling is a sign of concern that maybe the market has gone a little too far too fast," said Ed Clissold, chief U.S. strategist at Ned Davis. "We wouldn't be surprised if there was a modest pullback given how far the market has run."
Other signs of investor sentiment are giving off conflicting readings. The 30-day average ratio of bearish "put" options to bullish "call" options on the Chicago Board Options Exchange is near the lowest level since 2014, according to the exchange's data, a sign of reduced hedging, a bullish sign.
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But the proportion of bullish investors in the weekly survey conducted by the American Association of Individual Investors fell to 30% of respondents this week, the lowest level since just before the election.
Insider selling can give mixed signals, too, and the absolute figures alone don't themselves portend an imminent decline in stocks. Corporate executives can sell their stockholdings for many reasons, and selling generally outpaces buying regardless of market conditions.
"People sell for a variety for reasons, exercising options or buying a house," said John Buckingham, chief investment officer at Al Frank Asset Management. "But generally there's one reason to buy — you think your company is undervalued."
During early months of any year, executives who received stock-based compensation are freed up to take money off the table, so selling tends to be higher, according to Ben Silverman, director of research at InsiderScore, a research firm.
Historically, the most powerful signal from insider activity comes when executives ratchet up buying to benefit from a stock-market rebound. The number of insider buyers surged to nearly 3,200, the second highest on record, during November 2008, in the depths of the financial crisis, according to the Washington Service.