"Warning sign" behind the 10 record highs of US stocks in July: Corporate executives selling their own shares wildly

In July, investors flocked to the US stock market, causing the S&P 500 index to hit 10 historical highs within a month. However, a significant group went against them: corporate executives. According to data collected by Washington Service, last month only 151 of the S&P 500 component companies had insiders buying company stock, the lowest level since at least 2018. Although insider selling slowed down in July compared to June, the decrease in purchases was greater, resulting in the buy/sell ratio reaching its lowest level in a year. The decline in executives' preferences occurred as the stock market rally seemed to be losing momentum, even before the selling on Friday. After a 5% increase in June and a 6.2% increase in May, the S&P 500 index rose 2.2% in July. However, the sudden rise in the past three months made the valuation of the S&P 500 index too high, with its price-earnings ratio approaching 23 times (significantly higher than the 10-year average of about 18 times). Therefore, the cautious attitude of corporate leadership (as they are the ones most familiar with their company's situation) may indicate concerns about their own market valuation and potential negative impacts on company performance from the comprehensive global tariff policies implemented by President Trump. Dave Mazza, CEO of Roundhill Investments, said, "Currently, the behavior of corporate executives is quite similar to institutional investors: cautious, conservative, and very sensitive to valuations." Furthermore, economic data has become increasingly concerning. The latest employment report released on Friday showed a slowdown in the labor market, with significant deceleration in job growth over the past three months and an increase in the unemployment rate last month. Additionally, the inflation indicator favored by the Federal Reserve showed the fastest growth rate this year in June, while consumer spending hardly increased. Market Sentiment Variation Of course, investors need to be cautious when interpreting the buying and selling behavior of insiders, as there may be other factors at play behind these actions besides market performance. However, the lack of enthusiasm of corporate executives for their company's stock contrasts sharply with the generally rising risk appetite on Wall Street in July. The S&P 500 index has not seen a consecutive three-month rally in nearly a year, and since its low point on April 8th, the index has surged by over 25%. Additionally, share buyback activity slowed down last month and has been below the usual seasonal levels for four consecutive weeks starting from July 25th, according to the latest data cited by strategists such as Jill Carey Hall from Bank of America. The company acknowledges that one reason for this situation may be the delay in the start of earnings season due to the July 4th holiday. However, Carey Hall's analysis shows that stock buybacks as a proportion of market capitalization have been consistently declining since March, indicating that "rising rates and valuation levels may finally be impacting corporate sentiment." Mazza said, "The hesitance towards buybacks indicates a focus on protecting the company's balance sheet rather than sending a signal of market confidence. Given the current market rally, this attitude is significant." According to Sameer Samana, Senior Global Market Strategist at Wells Fargo Investment Research Institute, analysts closely monitoring corporate stock buyback data may find that corporate buyback behavior reflects market sentiments more than insider selling behavior. This is because individuals often have ongoing financial needs and usually prefer to adjust asset allocations from their concentrated stock holdings. However, overall, the lack of confidence in their own stocks by companies and their executives is indeed worth investors' attention. Samana stated, "Those who know the company the best will tell you that a lot of good news is already priced in."