Corporate executives are taking advantage of near-record U.S. stock prices by selling shares in their companies at the fastest pace in two years.
There were about 12 stock-sale announcements over the past three months for every purchase by insiders at Standard & Poor’s 500 Index companies, the highest ratio since January 2011, according to data compiled by Bloomberg and Pavilion Global Markets. Whenever the ratio exceeded 11 in the past, the benchmark index declined 5.9 percent on average in the next six months, according to Pavilion, a Montreal-based trading firm.
Confidence in equities from individual investors may soften the blow from insider sales this time, according to Pavilion’s Pierre Lapointe, head of global strategy and research. Rather than signaling the market has reached a peak, the transactions may reflect aging executives and board members seeking to lock in profits from a four-year rally before they retire, Damon Vickers & Co. said.
“These middle-aged executives, a lot of them, have waited some 13 years for their assets to see the light of day,” Damon Vickers, chief investment officer of the Seattle-based broker, said in a Feb. 14 phone interview. “They’ve had to endure a tremendous amount of volatility. And if you’re 61 years old and the majority of your net worth is tied up in your company’s stock, you may be inclined to liquefy some of that, just from a standpoint that you’re nearing retirement.”
Double Average
The ratio of sales versus purchases by chief executives, directors and senior officers at S&P 500 companies is more than twice the average ratio of 5.4 over the past 10 years, according to data compiled by Bloomberg and Pavilion. In the months after the ratio was last at this level, the benchmark index retreated as much as 19 percent from April to October of 2011.
“You have continuing conservatism and credence in people’s personal financial transactions, which means a low level of stock ownership,” Michael Holland, chairman and founder of New York-based Holland & Co., said in a Feb. 15 phone interview. His firm oversees assets of more than $4 billion. “It’s just one more reflection that people are continuing to be careful, cynical and skeptical about the market.”
Stock sales have been led by insiders at companies from Dollar General Corp., the largest U.S. dollar-store chain, and BlackRock Inc., the world’s biggest money manager, who unloaded more than $5.3 billion worth of shares in each of their companies in the past year, according to data compiled by Bloomberg. Other big sellers were from Microsoft Corp., with $2.4 billion, and Capital One Financial Corp., with more than $3 billion in sales, according to data compiled by Bloomberg.
Budget Concerns
Executives may be reacting to concerns about slower economic growth triggered by the increase in payroll taxes and possible government spending cuts as the debate over the federal budget rages in Washington, according to Philip Orlando, chief equity strategist at Federated Investors, which has about $380 billion in assets under management.