Corporate executives have this month bought shares in their companies at a rate not seen since the early days of the Covid-19 pandemic in what some Wall Street analysts said was an encouraging sign for the US stock market.
Between the start of the month and May 24, insider buying at S&P 500 companies has been the strongest since March 2020, according to figures from VerityData. For the broader Russell 2000 index, there have been more insider buyers than sellers this month for the first time since March 2020, VerityData said.
Despite retail investors pulling out of the stock market and the looming threat of a slowdown or recession, “corporate insiders are holding a non-consensus view across most sectors and [are] actively buying the dip”, analysts at JPMorgan said in a May 27 note, adding that the share purchases were encouraging for the direction of stock markets.
US stocks snapped a seven week losing streak on Friday although the benchmark S&P 500 index is down 12.8 per cent so far this year.
Strong insider buying “has historically been a pretty good sign of market bottoms”, said David Giroux, portfolio manager at T Rowe Price.
“Insiders are saying ‘we don’t see a massive event coming’ . . . [that] these are really good buying opportunities,” he added. “This is just another confirming data point that should be positive for the market over six to 12 months if not longer.”
Earlier this month Howard Schultz bought $15mn of Starbucks shares after returning as interim chief executive in March to the company he turned into a global coffee chain. It was the first insider stock buying at Starbucks since August 2018, VerityData said. Starbucks shares are down about 35 per cent so far this year.
Vladimir Shmunis, co-founder and chief executive of RingCentral, a web-based app company that replaces landline phones, spent $1.2mn on his first stock purchase since the company went public in 2013. RingCentral has seen its share price plunge more than 60 per cent this year.
Representatives from Starbucks and RingCentral did not respond to a request for comment.
“There is certainly message sending [with] buying and some of it is performative,” said Ben Silverman, research director at VerityData.
However, Silverman said that he would have expected “more intense buying right now”, especially at S&P 500 companies.
“In March 2020, no one had any clue how the next two years would play out,” he said, adding that at the start of the pandemic “we saw a lot more [buying] conviction”.