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Insiders Are Preparing for Stock Market Crash

(Tue, 2 Jun 2020). May was a busy month for corporate insiders. Several high-profile stock sales suggest business leaders have a gloomy outlook. A CFO survey shows more than half of the world’s finance chiefs are expecting the market to retest its lows. The U.S. stock market rally has been unstoppable over the past two months.

Despite a spate of terrible economic data, investors appear to be committed to looking past the pandemic’s damage to U.S. businesses. But as investors rush in, executives and other members of the C-suite are quietly backing out.

 

Insiders Are Exiting The Stock Market

A flurry of insider selling during May suggests those at the helm know something the wider stock market doesn’t: a correction is coming. Over the past year, May 2020 has seen more insider sales than any other month, with those in the know dumping $4.6 billion worth of shares. One such insider was Uber (NYSE: UBER) Senior Vice President of Marketing and Public Affairs, Jill Hazelbaker. She cashed in half of her Uber shares in May, netting $8.6 million. Insider activity can be misleading because executives often cash in through pre-arranged, recurring transactions. Hazelbaker’s sale, though, was a one-off.

A wave of insider sales at Moderna (NASDAQ: MRNA), a frontrunner in the race to develop a vaccine, paints a murkier picture. Several C-suite Moderna executives sold large portions of their MRNA holdings in recent weeks. All of the sales were executed under 10b5-1 plans, which offer pre-arranged sales to give those with stock compensation a chance to gain liquidity without stoking the stock market’s fears.

Still, many are questioning whether the sudden rise in trades has something to do with the share price’s meteoric rise over the past month.  There’s always that other possibility — that these guys really know this whole thing is bogus and they’re selling while the selling is good. But you can’t tell from the data which one it is, and they certainly have plausible deniability

Other notable insider sales in May included Procter & Gamble (NYSE: PG) Vice Chairman and CFO Jon Moeller dumping $15 million worth of PG shares and Best Buy (NYSE: BBY) Director Joly Hubert shedding $17.5 million in BBY stock.

 

This May Suggest Insiders Expect A Correction

But the insider selling frenzy may not be related to the happenings at specific companies. It could be in response to a stock market-wide correction that U.S. business leaders fear is waiting on the horizon. A CNBC survey of chief financial officers found that more than half believe the Dow Jones Industrial Average (DJIA) will retest its March lows.

North American CFOs are notably more optimistic than their peers on other continents, but nearly 50% expect the stock market to decline in the near future – not appreciate. Economic demand is their biggest concern, and April’s consumer spending data appears to have confirmed their fears. Spending was down a whopping 13.6%, a trend that could continue as long as unemployment persists.

Insider investing activity is a tricky metric to trade on because there are so many unknowns. But between the CFO survey and the rising tide of stock sales in the C-suite, it’s a trend worth keeping an eye on. It’s not a good sign for investors if the people running the companies they’re betting on are starting to cash out.

 

 

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