Despite crashing stock prices, corporate executives have been shying away from their companies’ stocks in the past six months, a sign that business insiders expect further stock market trouble ahead, The Wall Street Journal reported Thursday, citing data from InsiderSentiment.com.
The service tracks the purchase and sale of a firm’s stock by its own executives to get a measure of what it calls “insider sentiment” or “aggregated insider trading,” in order to gain an insight into broader economic conditions, according to the site’s blog. For six months running, the ratio of companies whose insiders are buying their stock to those whose are selling has declined, the longest stretch in nearly two years, the WSJ reported.
“The thing that stands out right now is the lack of buying even though prices have come down so much,” Dr. Nejat Seyhun, a professor of finance at the University of Michigan who collaborates with the site, told the WSJ. “That’s kind of a warning.”
Although many insiders typically schedule their trades in advance to avoid appearing to be taking advantage of inside information, they often have the most insight into their own businesses and tend to make well-timed trades, according to the WSJ. While executives tend to sell more than they buy, since many are compensated with stocks, the lack of buying even as stocks crater is a sign that insiders expect market conditions to continue to worsen.
Stock markets ended 2022 as one of the worst years on record, and have since have not posted large gains or losses, according to Google Finance. Big Tech firms — in particular Meta, Amazon and Google parent Alphabet — have faced double-digit stock declines as the industry struggled to justify its size as a pandemic-motivated boom in demand subsided.
Insiders are likely being disincentivized due to the continuing campaign of interest rate hikes by the Federal Reserve, as the central bank continues its bid to slow inflation by blunting consumer demand, the WSJ reported. Fed Open Market Committee member Neel Kashkari wrote that he anticipated that the Fed would continue to raise interest rates by about one percentage point through 2023, according to an essay published Wednesday on Medium.
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