Insiders & Big Investors Getting Nervous: Stock Market in Trouble?
If you are wondering where the stock market is headed next, keep a close eye on how corporate insiders and big investors are acting.
Here’s the worrisome part: right now, insiders and major investors are saying that the stock market could be headed for trouble.
Why care about these folks?
Corporate insiders and big investors usually see the trends change before anything hits the headlines.
In the case of corporate insiders, this occurs because they have all the data in front of them. When it comes to big investors, they spent huge amounts of money on research, so they have access to information that may not be available to an average investor.
Now let’s look at what’s been happening…
Corporate Insiders Not So Keen on Buying Stocks
Corporate insiders seem somewhat nervous owning shares of the companies they work for. According to the data from InsiderSentiment.com, out of all the U.S. companies with transactions by an insider in July, just 15.7% reported net buying. This was the lowest in the past 10 years!
In August, this pace ticked up to 25.7%, but then dropped to 21.9% in September. Just so you know: the 10-year average is around 26.3%.
Now let’s look at the bigger picture: according to data from Washington Service, insider purchases amounted to $2.3 billion in the first three quarters of 2024—this is the lowest level since 2014. In the same period in 2023, insiders purchased about $3.0 billion worth of shares.
Some notable insiders selling stock include the following:
- Jeff Bezos, founder of Amazon.com Inc (NASDAQ:AMZN) sold $10.3 billion worth of shares
- Michael Dell, chairman and chief executive officer (CEO) of Dell Technologies Inc (NASDAQ:DELL) sold $5.6 billion in shares
- Mark Zuckerberg, chairman and CEO of Meta Platforms Inc (NASDAQ:META), has sold $2.1 billion worth of his shares
- Palantir Technologies Inc (NYSE:PLTR) chair Peter Thiel and NVIDIA Corp (NASDAQ:NVDA) CEO Jensen Huang have also sold shares of their companies
(Source: “Corporate Insiders Are Sitting Out the 2024 Stock-Market Rally,” The Wall Street Journal, October 6, 2024.)
Here’s the kicker: all of these companies have seen robust gains recently, and one has to wonder if these corporate insiders are just “taking profits” or are we seeing their companies and ultimately the stock market as “overvalued”?
Warren Buffett Selling Shares
Legendary investor Warren Buffett has been building a big cash position by selling stocks in the Berkshire Hathaway Inc (NYSE:BRK-A) portfolio. It wouldn’t be wrong to say that selling has been relentless at his firm.
Since the last quarter of 2022 through the second quarter of 2024, Berkshire Hathaway has sold more stocks that it has purchased. In other words, it has been a net seller of stocks.
Over this period, Buffett’s Berkshire Hathaway has offloaded $131.63 billion more in stocks than it has purchased. Recently, the firm has also trimmed one of its top positions: Apple Inc (NASDAQ:AAPL). (Source: “Warren Buffett’s 8-Quarter Streak Appears to Foreshadow Trouble for Wall Street,” Yahoo! Finance, October 7, 2024.)
What’s Ahead for the Stock Market?
Dear reader, the stock market has seen a solid move to the upside despite inflation going higher and dropping, interest rates spiking, and recent evidence that the U.S. economy is starting to slow down. It remains extremely resilient.
However, you can’t take ignore what corporate insiders and big money investors like Buffett are doing. I can’t stress this enough; their actions are speaking louder than words. In fact, they are foretelling a poor performance for the stock market going forward.
Obviously, with time we will know more, but caution is required. The higher the stock market goes, the worse the downside could become. Having stops in place is a good idea.