Investors shying away from stocks out of recession fears may want to take a cue from Wall Street insiders who are seizing stock opportunities after the S&P 500’s longest stretch of weekly losses in 20 years, reports an article in Bloomberg. Those insiders were rewarded by the recent 2% bump in stocks with the belief that the U.S. will ease tariffs on some Chinese products.
Over 1100 executives and officers have gobbled up shares from their own firms this month, in a move that’s on track to exceed the number of sellers for the first time since the start of the pandemic. That buying spree comes just as investors are yanking their cash out of equity funds, causing strategists to rethink their market outlooks and warn that a recession could be on the horizon as the Fed continues its aggressive tightening policies.
Of course, anyone buying the dip right now is doing so on the belief that future earnings will be high; if expectations are met, S&P 500 companies could earn a combined $248/share in 2023. With that estimate, the S&P 500 is trading at about 16x profits—a bargain, historically. And the current buying spree amongst executives and officers indicated that they have faith in those future profits even with the aggressive action from the Fed. The insider buy-sell ratio has jumped to 1.04 in May—up from 0.43 in April, according to Bloomberg. Among the insiders who are snapping up their own stock are Interim CEO Howard Schultz of Starbucks and CEO of Intel Corp. Patrick Gelsinger.
But there could be other reasons for the recent bounce aside from these insider purchases, such as the optimistic advice coming out of JPMorgan Chase to analysts purporting that shares have fallen too far too fast. End-of-month rebalancing could be another explanation, as well as the options expiration on May 20th that left those who had taken short positions free to undo them.
Most on Wall Street believe that the worst isn’t over for stocks, amid the Fed’s hawkish threats, continued supply chain disruptions and new Covid lockdowns in China. As co-founder of DataTrek Research Nicholas Colas puts it, “…the valuation of any stock or the entire market hinges on…investor confidence in future cash flows…rising and falling. At present, confidence is falling,” not necessarily because of a possible recession, but because the range of possible S&P 500 earnings continues to widen.
Still, the corporate buying spree, in addition to the $666 billion in buybacks that U.S. companies have announced this year, could be a positive signal as to what lays ahead.