Insiders throw off shares
Many US stocks are doing great, setting new all-time highs in the midst of the pandemic. However, there are indications that at least some leaders "Corporate America" skeptical about the sustainability of this mega-rally, which led to the rise of S&P 500 up 51% from March 23 lows.
CEOs, top shareholders and other executives rush to cash the checks.
According to TrimTabs Investment Research, the so-called "insiders" from the beginning of May dropped shares worth more than $ 50 billion. According to TrimTabs, August will be the third month of the last four that insider sales exceeded $ 15 billion. This rate of insider sales has not been seen since 2006.
The pace of insider selling can be a warning sign for a fast-growing market because insiders, by definition, have more information about the true health of their companies than other investors. And if they were confident in the growth of the market, they would hardly be selling now. However, many are exiting stocks despite the fact that the markets are at the turn of new historical achievements.
«If you are a leader and see difficult economic conditions, the market presents you with a sharp bounce.», – said Peter Boquard, Chief Investment Officer, Bleakley Advisory Group. «Insiders seem to think it’s time to take advantage of these opportunities».
On the contrary, other investors filled the market with money. CNN Index "Fear and Greed" (CNN Business Fear & Greed Index) is located in «greed», and some estimated indicators S&P 500 significantly exceed historical standards.
Few could imagine how quickly the markets would suddenly recover from the coronavirus pandemic, which caused massive unemployment and a wave of corporate bankruptcies..
Reaching S&P 500 record high since February, estimated some experts, testifies to the end of the bear market, making it the shortest in history.
«Insiders might look at stocks and say:«The market is far ahead of itself», – said Mark Chaikin, founder of Chaikin Analytics, a Philadelphia-based quantitative investment research firm, .
However, insider concerns are not changing the driving force behind the market rally. Easy money from the Federal Reserve is defining, according to analysts.
«The market doesn’t care. It’s a Fed-driven and liquidity-driven market», – said Chaikin. «Money has nowhere to go».
Chaikin said insider selling was strong at two companies that he was optimistic about: biotech giant Regeneron and chipmaker Nvidia, each of which has surged in shares this year. But it doesn’t really bother him..
«It doesn’t really mean anything to me. Insider Selling Is Not a Yellow Flag in a Dynamic Market», – he said.
It is important to note that while insiders must document when they buy and sell their stocks, they don’t need to explain the reason why they do it.
This means that it is unclear whether insiders are dumping stocks because they fear a market bubble or some other negative economic event, or simply because they need to raise money to buy a new house.
«Maybe they are literally just figuring out their own personal balances. These are real people making real economic decisions.», – said Nicholas Colas, co-founder of DataTrek Research.
Colas added that CEOs may also want to cash out their "chips", because they fear for their jobs as companies seek to cut costs during a pandemic.
«These are not Robinhood traders, said Colas.. «They are executives trying to figure out the right amount of cash in the bank in case of dismissal.».
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