Earlier this month we reported, using TrimTabs data, that perhaps as a result of ballooning corporate debt the value of stock buyback announcements from U.S. companies had slowed to its lowest level in nearly five years, dropping to a fresh nine quarter low, with TrimTabs adding that this potentially joepardized one of the main drivers of the rising stock market. The company calculated that buybacks rebounded to $59.9 billion in September from a 3½-year low of $21.5 billion in August, but two-thirds of last month’s volume was due to a single buyback by Microsoft. The 39 buybacks rolled out last month was the lowest number in a month since January 2011.
Then, in a new report released today, TrimTabs analyzed buying patterns by corporate insiders and found insider buying was "almost non-existent in October." Looking at Form 4 filings with the Securities and Exchange Commission, TrimTabs reveals that insider buying has dropped to just $110 million in October through Friday, October 21. This was the lowest monthly total going back to 2011.
“The best-informed market participants seem unenthusiastic about U.S. stocks at current prices,” said David Santschi, chief executive officer at TrimTabs. “Insider buying is running at the slowest pace for October in the past five years.”
In a research note, TrimTabs explained that the weakness in buying is not just seasonal. On the first 15 trading days of October, insider buying was $390 million in 2012, $360 million in 2013, $540 million in 2014, and $260 million in 2015.
TrimTabs added that as insider buying slumps, U.S. companies are also committing less cash to repurchase shares. Stock buyback announcements fell to a nine-quarter low of $115.0 billion in the third quarter, and they would have been much lower without a single $40 billion buyback for Microsoft. Buybacks have totaled just $8.2 billion this month through Friday, October 21.
“The pullback in buying by both insiders and companies isn’t an encouraging sign for U.S. equities,” said Santschi. “Corporate America seems to be battening down the hatches.”
Incidentally, the TrimTabs report confirms what Bank of America also reporter earlier today in its weekly institutional buying, or rather selling report, namely that in the last week, BofAML "clients were net sellers of US equities for the second week (-$0.4bn vs. -$0.9bn the prior week). Institutional clients continued to lead the selling, and have now sold US stocks for the last 20 weeks. Hedge funds were also net sellers following two weeks of buying. But private clients bought stocks for the third week, after selling stocks most weeks since February."
Despite selling stocks for most of this year, our private clients are actually more overweight equities than they were in 2007 (likely a function of performance and lack of rebalancing).
Meanwhile, BofA noted that while buybacks by corporate clients did accelerate to their highest level in six weeks, they are tracking well below their typical run-rate for the first three weeks of October, and year-to-date are tracking their lowest since 2012, confirming the TrimTabs findings.
In other words, both corporations and insiders have dramatically cut back on their stock purchases, while most smart money clients continue to sell.
Which leads us to a now traditional question: if the buying is the slowest in years, and insiders are selling, how are stocks holding up where they are?