Insiders are selling their shares at record pace

Insiders of the largest U.S. publicly traded companies are selling their own shares at record speed. This is reported by the Wall Street Journal based on new figures from research firm InsiderScore. To date, 48 people at the top of the largest publicly traded companies have sold more than $200 million worth of stock. A similar number of individuals sold more than $100 million worth of shares. By comparison, these figures are almost four times higher than the average over the period from 2016 to 2020. What does this mean for the stock market?

For the S&P 500 as a whole, insiders have already sold $63.5 billion worth of stocks this year, half as much as in all of 2020. Of that, $41 billion is accounted for by companies in the technology sector. These stocks have risen the most in value and therefore have a large weighting in the index. What is also striking is that many more insiders are selling shares this year than in previous years. One possible explanation for this is that stock prices have risen particularly fast this year and are at record highs. So, it is conceivable that insiders will take profits because of the high valuations. The last time insiders sold stocks so massively was just before the bursting of the internet bubble.

Insiders are selling more and more shares

Why are insiders selling so many stocks now?

Historically, insiders sell most stocks when prices are high, while they usually buy more when their companies' shares are low-valued. Insiders know better than anyone how their company is doing and whether their company's stock is expensive or cheap. From that perspective, record insider selling of stocks may mean that stocks have now become too expensive. For investors, this can also be a reason to sell shares now.

Another possible explanation for this trend is an expected tax increase in the US. President Biden's administration wants people with more than $10 million in income to pay 5% tax on it. For revenues above $25 million per year, that should even be 8%. That could be a reason for insiders of large companies to take profits on some of their shares this year. The announcement of these tax plans gave a boost to insider sales in November. In that month alone, insiders sold $15.59 billion worth of shares. Insiders also sold a lot of shares in May this year, after stock prices rose on better-than-expected earnings.

This contribution comes from Geotrendlines