Recession Looming? Corporate Kingpins Are Dumping Stock

Insiders are selling at rates unseen in two decades, a bad sign for the stock market.

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Why you should care

Because insiders are selling at rates unseen in two decades.

Executives across the United States are shedding stock in their own companies at the fastest pace in two decades, amid concerns that the long bull market in equities is reaching its final stages.

Corporate insiders — typically CEOs, chief financial officers and board members — sold a combined $19 billion of stock in their companies through to mid-September, according to data from Smart Insider, a U.K.-based group.

That puts them on track to hit about $26 billion for the year, which would mark the most active year since 2000.

That year executives sold $37 billion of stock amid the giddy highs of the dot-com bubble. That projected total for the year would also set a postcrisis high, eclipsing the $25 billion of stock sold in 2017.

Enthusiastic sellers of their own stock this year include members of the Walton family, who have sold a combined $2.2 billion of shares in the Walmart retail empire. Executives at Estée Lauder, the cosmetics giant, and clothing group Lululemon Athletica also appear among the most active sellers, according to Smart Insider.

 

A Walmart spokesperson said the Walton family had been selling shares in the company to help offset possible further increases in its ownership percentage, which had risen to approximately 50 percent due to Walmart stock repurchase programs, and to partly fund charitable contributions.

Investors often use data on insider stock sales as a rough marker for the confidence of executives in their own companies’ prospects. Spikes in selling indicate that top figures in boardrooms around the country are taking advantage of high valuations in the U.S. stock market, which has broken records this year but which faces pressures stemming from slowing global growth and Washington’s lengthy trade dispute with Beijing.

Facebook CEO Mark Zuckerberg, for example, has sold $960 million in stock for the year so far.

The rise in insider stock sales has been fed by “the uncertainty over global growth and the trade war and also because stock valuations are high,” says Mike Mullaney, director of global markets research for Boston Partners, which manages about $89 billion in assets. “We just don’t know where we are right now, so why not play it defensive[ly]?”

Troy Gayeski, co-chief investment officer for SkyBridge Capital, says that recent moves by central banks to ease monetary policy, in response to deteriorating economic data, are a sign that companies can expect profits to fade.

“In management, you know the boom times are over in terms of record profitability. Why wouldn’t you take money off the table?” Gayeski says.

The data shows that insiders paused stock sales late last year when a volatile October and the worst December for U.S. equities since 1931 weighed on the market, which ended the year down about 6 percent. Since then, the S&P 500 has come roaring back, gaining almost one-fifth this year.

Smart Insider’s data excludes sales of stock linked to corporate executives exercising stock options. It also strips out sales carried out for tax purposes, which are typically carried out automatically over the year. Such sales can be significant; Facebook CEO Mark Zuckerberg, for example, has sold $960 million in stock for the year so far, according to filings with the U.S. securities regulator.

Spokespeople for Estée Lauder and Lululemon declined to comment.

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By Richard Henderson

OZY partners with the U.K.'s Financial Times to bring you premium analysis and features. © The Financial Times Limited 2019.

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