Salient to Investors:
Bloomberg and Pavilion Global Markets report 12 stock-sale announcements over the past 3 months for every purchase by insiders at S&P 500 companies, the highest ratio since January 2011. Pavilion said readings above 11 historically preceded average declines of 5.9 percent over the following 6 months. The ratio of sales versus purchases by CEOs, directors and senior officers is more than 2 times the average ratio of 5.4 over the past 10 years. In the months after the ratio was last at this level, the S&P 500 lost as much as 19 percent from April to October of 2011. Executives at 153 S&P 500 companies sold shares between February 11 and February 15 – announcements of sales outnumbering buys by 17 to 1.
Pierre Lapointe at Pavilion said insiders are not buying the rally, which have given them reason to sell their own stock. Lapointe said history tells us that high insider selling is usually followed by disappointing S&P 500 returns in the following months. Lapointe said insider transactions do not move markets, large inflows do and stocks should be supported over the short-term by confident individual investors pumping money into equities.
Damon Vickers at Damon Vickers & Co. said insider sales may be reflecting aging executives and board members locking in profits from a 4-yr rally before they retire, rather than signaling a market peak. Vickers said many of these middle-aged executives have waited 13 years for gains while enduring tremendous volatility,and have the majority of their net worth tied up in their company’s stock.
Michael Holland at Holland & Co. said the continuing conservatism in people’s personal financial transactions means a low level of stock ownership, while people are continuing to be cynical and skeptical about the market.
Philip Orlando at Federated Investors said Washington starts merging with Wall Street and Main Street at this point following a terrific run in stocks, so with insider selling swamping buying expect a pullback over the next month or two.
ICI report investors deposited $37 billion into equity funds in January, the most since 2004.
71 percent of the 413 S&P 500 so far reporting have beaten estimates, 66 percent have beaten sales estimates.
Ben Silverman at InsiderScore.com said high insider-selling levels tend to occur near the end of earnings season since executives are not allowed to buy or sell stock ahead of announcements, while sales of restricted stock awards at the beginning of the year may also be adding to the tally. Silverman said in general, insiders don’t buy the rally anyway, and while people sell for a number of reasons, they only buy for one, so selling is not predictive in that respect.
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