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In a clear sign of confidence in November’s impressive equity rally, insiders, both big and small, are actively buying up stocks. The surge in stock values, totaling $5 trillion this month, has triggered heightened repurchase activity among Goldman Sachs Group Inc.’s corporate clients and a record-setting week of execution orders at Bank of America Corp.’s buyback desk.
Corporate executives and officers are also actively participating in the market, with data from the Washington Service indicating that the ratio of buyers to sellers is poised to reach a six-month high. This surge in insider buying aligns with the broader market sentiment, as stocks rebound from the year’s most significant retreat, fueled by expectations that the Federal Reserve will pause its rate-hike campaign amidst cooling inflation.
While skeptics voice concerns about a potential 2024 recession, corporate insiders have historically demonstrated strong market-timing abilities in recent years. The surge in insider buying is seen as a double-barreled sign of optimism, with companies and individual executives showing confidence by investing real money back into their own stocks.
As of Monday, nearly 900 corporate insiders have purchased their own stock in November, more than doubling the previous month’s activity. Although sellers also increased, the pace was comparatively smaller, resulting in a buy-sell ratio of 0.54, the highest level since May.
While not reaching the levels seen in March 2020 when insider buyers outnumbered sellers 2-to-1 at the bottom of the pandemic crash, the current bullish stance contrasts with July, where insiders rushed to sell stocks, accurately predicting a subsequent 10% decline in the S&P 500 over the next three months.
This newfound vigor among business leaders aligns with growing bullishness in the broader market, where retail investors and big-money managers are unwinding bearish wagers, propelling the S&P 500 towards one of its best Novembers in history. Corporate buybacks, which were relatively restrained earlier this year, are now on the rise, with BofA’s clients consistently surpassing seasonal levels, including a record $4.8 billion in buybacks.
Goldman Sachs predicts that corporate buybacks could reach $5 billion a day until the market enters an earnings-related blackout on Dec. 8. However, concerns arise about potential choppy trading in the short term once the blackout window opens, with fast-money managers possibly trimming exposure if market conditions deteriorate.
Despite short-term uncertainties, buybacks continue to offer support, with US firms announcing approximately $900 billion of share repurchases this year, poised for the third-highest annual total on record. Positive earnings growth and forecasts for profit expansions next year, coupled with expected drops in interest rates, make stocks an attractive investment, particularly for companies outside the dominant tech giants.
According to Mike Bailey at FBB Capital Partners, insiders might be eager to buy undervalued stocks of companies that have underperformed this year, with hopes of a reversal in the market next year, especially as smaller companies potentially outperform the mega-caps.
