Insiders accelerated stock purchases on the downturn. Should we follow their lead?

The worst stock drawdown since April triggered a wave of buying by corporate insiders. Over the past 30 days, top managers of public companies bought back securities of their firms at the fastest pace since Ma, Bloomberg writes.

Insiders started actively buying shares amid growing worries about a possible bubble around AI, which triggered a large-scale flight of investors from shares of expensive technology companies into protective assets. According to Washington Service, against this background, the insiders' buy-to-sell ratio rose to 0.5, the agency writes.

Increased buying by insiders should give some confidence to market bulls under pressure, with the S&P 500 Index down 3.1% over the past week, and November could be the worst month for stocks since April, Bloomberg notes. Top managers are entering the market just when others who like to buy on dips are becoming more cautious, and recent intraday rebounds are quickly coming to naught amid a five-day decline in U.S. stocks, the agency explains.

"They back up their words with money. They don't do de-trading. They're long-term investors who take advantage of downturns," said Infrastructure Capital Advisors CEO Jay Hatfield, commenting on insider buying.

Hatfield said he has recently increased positions in individual companies after seeing insider buying - including chipmaker Marvell Technology, whose shares sagged after a subdued outlook. He said he placed more buy orders for the company's securities on Nov. 19.

Traders on Wall Street actually supported the confidence of insiders in their companies. For example, JPMorgan Chase called the S&P 500 drawdown a "technical washing" of the market, which creates an opportunity for investors to increase the share of shares in portfolios, Bloomberg reports.

One reason investors are willing to buy stocks on the downturn is that corporate earnings for the third-quarter reporting season generally exceeded Wall Street expectations. Advisors Asset Management chief investment strategist Matt Lloyd said corporate earnings are "holding at the highest level" in the history of the watchdogs. Insider buying toward the end of the period is adding further investor confidence in the outlook for corporate America.

"Insiders are in a pretty good position to assess their company's prospects. Yes, they may be looking at their own business through rose-colored glasses, but net purchases by insiders can still be considered a bullish signal," says Brian Jacobsen, chief economist at Annex Wealth Management.

However, Northlight Asset Management Chief Investment Officer Chris Zaccarelli clarifies that while insiders know their companies well, "they don't necessarily know the stock market as a whole," so you can't rely on their actions as a tool for choosing the exact moment to enter.

"Insiders have many reasons to sell: diversification, taxes, liquidity needs. But here is only one reason to buy - they really believe the stock is undervalued," Zaccarelli says.

In the first half of this year, corporate insiders managed to accurately guess the timing of the sell-off in April: they bought their companies' shares at the fastest pace since 2023 - after U.S. President Donald Trump announced sweeping new trade duties, Bloomberg writes. The purchases preceded a market recovery, including the strongest one-day gain since the 1980s. After that, insider activity declined as the market began to renew a series of records at the end of the second quarter, the agency notes.

This article was AI-translated and verified by a human editor