Stocks plummeted in recent weeks but corporate insiders are still keeping to the sidelines. Insiders at small-cap firms are a key exception.
The S&P 500 index has fallen 17% this year, repeatedly tiptoeing near bear-market territory. Ben Silverman, director of research at investment research and analytics firm Verity, says insiders at S&P 500 firms are acting the same as they had in the first quarter: playing a game of wait and see.
There were 272 insider sellers at S&P 500 firms in April compared with 32 buyers, according to data provided by Verity. More than midway through May, there were 225 sellers and 42 buyers, which means there were 5.36 sellers for every buyer. Insiders, such as corporate executives and board members, must disclose their stock trades with the Securities and Exchange Commission.
“Insiders there are, by and large, not buying,” Silverman says. “More positively, we are still seeing lower-than-typical levels of selling. There’s this unwillingness to accept the current valuations and generate liquidity at these valuations.”
Silverman sees more positive signs for stocks in the Russell 2000. Last month, there were 388 sellers and 105 buyers in April at Russell 2000 firms, but that’s flipped so far in May, where recently there were 327 sellers to 395 buyers. If such levels hold, it’d be the first month with more buyers than sellers since pandemic lows in March 2020.
For the week ended May 17, there were 281 buyers—the most since the week ended May 19, 2020. Even more promising, according to Silverman, was the ratio of buyers to sellers, which was 2.8 to 1. The one-year average is 0.7 to 0.8, meaning there were typically more sellers than buyers.
Silverman says he’s encouraged that insiders at small-cap firms are buying. He notes that we’re in the early stages of insider season, when quarterly trading windows are open at most firms.
“We’d like to this number continue to grow or at least not decline significantly because historically we’ve seen buying momentum either sustain or build over a three-to-five week period near market bottoms,” Silverman says.
At the sector level, Silverman sees buying momentum in the industrial goods space, including transportation, machinery, and electronic equipment firms. He calls buying activity at regional banks a positive sign since they generally have a good pulse on local economies.
There’s also been an uptick in high-profile purchases. Interim Starbucks CEO Howard Schultz purchased about $15 million in stock this month alone. That doesn’t mean investors should take all insider purchases as a bullish sign.
“When a market goes like this, and then there’s some companies that are sort of distressed or going through highly visible changes, ie: the start-ups, we start to see some large-dollar-value buys,” Silverman says. “But it’s really important for people to remember the wealth of the buyer and how much money they’ve taken out of the stock in the past couple of years.”
