Absent From Trump Rally in Stocks? Insider Buying

A wave of investor money has propelled U.S. stocks to records since Donald Trump’s presidential-election victory. But one group has been missing from the buying frenzy: corporate executives.

A total of 3,500 insiders at Russell 3000 companies have unloaded their own stock in the last three weeks, while 467 purchased shares, according to data from The Washington Service, a Bethesda, Maryland-based provider of insider trading data and news. The number of sellers was higher than the monthly average of 1,832 sellers this year through October. Sellers have also increased from the comparable year-ago period, and buyers have decreased.

“It reflects uncertainty over what the economic and regulatory landscape will look like next year,” said Ed Clissold, chief U.S. strategist at Ned Davis Research. “We’ll need to get clarity on what Trump will be able to implement.”

Insider buying and selling doesn’t necessarily presage gains or declines in a given firm’s shares, of course. But Wall Street watches the data because insiders are understood to have the best information about their companies’ prospects, and are also typically veterans of their industries with longer-term horizons.

While they have historically tended to sell more than buy, their behavior since the election diverges from investors, who have exhibited a rapid shift in sentiment and poured money into equities.

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The U.S. stock market limped into November, with the S&P 500 falling for nine days straight through Nov. 4, the longest stretch of losses since 1980. Since Nov. 8, investors have wagered Mr. Trump’s presidency will accelerate growth through fiscal spending and tax cuts. The S&P 500 hit four fresh records in November.

“The big increase in insider selling makes sense because we’ve been making all-time market highs,” said Aaron Jett, the Los Angeles-based vice president of global equity research at Bel Air Investment Advisors, which oversees about $8 billion. “A huge portion of their wealth could be tied up with that one stock so they could want to sell to diversify.”

It is normal for executives to sell into market strength, according to Mr. Jett. That said, a prolonged period of outsize selling by insiders would be concerning, he noted.

Since Nov. 8, no other group than banks has been buoyed by optimism surrounding the future Trump presidency amid expectations of higher interest rates and looser regulation. Still, in the last month, 891 insiders of U.S. financial companies sold shares, compared with 425 executives who added, data from The Washington Service show.

Both Mr. Clissold and Mr. Jett said it is more valuable to pay attention to a pickup in executive buying rather than selling, since sales can occur for personal, idiosyncratic reasons, while stock purchases tend to indicate confidence in the company.

On Feb. 11, as bank stocks plummeted to a multiyear low, J.P. Morgan Chase Chief Executive James Dimon bought 500,000 shares of his bank for about $26 million. J.P. Morgan shares rebounded 12% over the next month and have surged 51% since.

There have been two instances in the last seven years when investors stepped up purchases and timed a bottom in stock prices: in March 2009 as the bull market in U.S. equities following the financial crisis was just getting started and in August 2015 after the devaluation of the Chinese yuan sent shock waves across financial markets.

The market is currently in a wait-and-see mode and giving Mr. Trump the benefit of the doubt, according to Bel Air’s Mr. Jett. While the selling by insiders is no cause for alarm yet, it is something to monitor, he said.

“The elephant in the room is what will Trump’s agenda be? Once we get more clarity on that and if it’s pro-growth, we think the market could go further,” said Bel Air’s Jett. “What would make us feel more cautious is if he puts in place more isolationist policies and tries to go after trade agreements. That would hurt the market.”