Corporate insiders are an unexpected source of good stock-market news. Officers and directors of the corporation were more pessimistic as recently as mid-January than they had been in at least ten years. However, insiders accelerated their buying in March, the S&P 500 SPX’s worst-performing month since December 2022, and are now, on average, more positive than their following 10-year average.
The chart below, which uses data from InsiderSentiment.com, plots this history. This website is run by Nejat Seyhun, a professor of finance at the University of Michigan and a world authority on analyzing the actions of corporate insiders, along with his son Jon Seyhun.
The graphic specifically highlights companies that have seen insider buying or selling. Additionally, it ignores transactions by a company’s largest outside shareholders and only includes two of the three primary kinds of insiders: officers and directors. The percentage of businesses with net insider purchases—that is, more shares purchased by insiders than sold—is represented by the blue line. The trailing 10-year average (the red line) was 26.2%, while the March percentage was 28.2%. On Inauguration Day, the corresponding percentage was 12.1%.
This increase in insider buying is excellent news because it indicates that insiders believe it makes sense to both buy more and keep onto what they already own since they anticipate that their firms’ shares will soon recover from any first-quarter losses. Nejat Seyhun stated in an email that insiders would have expected prices to remain low or perhaps drop further in the near and intermediate term if they hadn’t accelerated their purchasing.
The insider-buy rate for the Seyhuns fluctuates, and previous buys have lasted just a month or two. Therefore, if the insiders’ March behavior persists into April, it will reinforce the bullish message.
Industries where net insider purchase occurs
But not every market area has insiders rising up to the plate. Six of the market’s eleven sectors—communication services, consumer discretionary, information technology, industrials, materials, and real estate—saw net insider buying in March, according to the Seyhuns’ data. A few stocks in industries with the highest net insider buying are listed in the table below. Keep in mind that because many of these stocks are tiny, their predicted volatility is higher than usual.
