In the latest indication that the market is due for a rebound, buying by corporate insiders - who are best known in recent years for aggressively dumping their shares to corporate buyback programs - surged in the past two months, and according to data from the Washington Service, has outpaced insider selling by the most in eight years, or since the US downgrade in August 2011 which prompted a market-wide rout.
The last time insider buying soared as much as it has in recent months, in August 2011, the S&P 500 was in the middle of a comparable 19% retreat before staging a 10% rally in each of the next two quarters. A similar spike in insider buying took place in August 2015 during the ETFlash crash following the China currency devaluation when stocks also tumbled only to see a sharp rebound.
As Bloomberg notes, the increase in demand from companies’ highest-ranking employees "will likely be seen as a vote of confidence in stocks" which on Monday briefly entered a bear market, even as anxiety rises over Federal Reserve rate hikes and political turmoil in Washington.
"Insiders are pretty well informed at the micro level of their businesses,” Todd Fungard, who oversee $1.2 billion as chief investment officer of McQueen, Ball & Associates Inc., said by phone. “It’s a good sign that business leaders still see demand at their companies and feel comfortable buying their own stock despite the headline risk."
One possibility is that insiders are telegraphing that another barrage of corporate buybacks may be imminent, as insiders generally tend to buy when they are confident that their stock will rise, and what better way to levitate stock prices than by having these same insiders announce even more buybacks. On the other hand, with IG credit spreads blowing out to 2+ year wides...
... using debt to fund such buybacks will be an increasingly precarious choice unless insiders also know something about the slowing economy (see today's catastrophic Richmond Fed print), and are expecting, or hoping, for interest rates to decline making bond issuance more palatable again.