Why Have Corporate Insiders Turned Bearish?

Source: Wikimedia

Dear Diary,

Dow down 116 points yesterday. Why?

Airstrikes against ISIS… Ebola… inversion crackdown… housing slowdown… record stock high prices… Alibaba?

The smart money knows what to do. From Bloomberg:

American companies have seldom spent more money than they are now buying back shares. The same can’t be said for their executives.

A total of 7,181 insiders bought their own stock this year through Sept. 12 and 23,323 sold shares, according to data compiled by Bloomberg and Washington Service. The ratio of buys to sells is near the lowest since 2000.

At the same time, corporate repurchases reached $275 billion in the first half of the year, the second busiest since S&P Dow Jones Indices began tracking the data in 1998.

Share purchases by executives are becoming rarer after seven straight quarters of advances pushed valuations in the Standard & Poor’s 500 Index to a four-year high.

While companies are pouring money into their own stock because they have nothing better to do with it, officers and directors aren’t – and that’s a bearish signal for share prices, said Brad McMillan, chief investment officer at Commonwealth Financial Network.

“It doesn’t say anything very good about the growth prospect for the business,” McMillan, whose firm oversees $86 billion, said in a phone interview on Sept. 18 from Waltham, Massachusetts.

“Who would know the business better than an executive in the middle of it? Even though executives are buying on the corporate level, their hearts are not in it personally.”

Insiders buying stock have dropped 8% from a year ago, poised for the fewest in more than a decade, according to data compiled by Bloomberg and Bethesda, Maryland-based Washington Service. Monsanto Co. and Cisco Systems Inc. are among companies whose executives have done less buying even as corporate repurchases increased.