Markets are hitting record highs. The economic data is surprising on the upside. So what’s to worry about? It appears that the evidence is consistent with what you typically see during bull markets:
- sentiment is positive;
- investors are enthusiastic;
- earnings expectations are running high;
- valuations show optimism; and
- downside volatility is low.
These are the types of dynamics that can form self-reinforcing feedback loops creating markets which become over-bought, where “animal spirits” become “excessive exuberance”. How to tell when you have reached that stage? It is almost impossible.
One signal we look at is insider corporate selling. As markets hit record highs, the ratio of corporate insider selling to insider buying is at the highest level since the first quarter of 2021, according to Verity LLC, which tracks insider trading disclosures. Stock sales at the beginning of a calendar year are normal, with pent-up demand in early 2024 being exacerbated by shareholders avoiding sales last year because of depressed company valuations. But the latest selling spree has been surprising and could be an indicator that the recent tech bull run, fuelled by excitement over the rise of generative artificial intelligence, is close to its peak.
Source: FT
Many of the biggest sales this quarter have come from technology executives. Peter Thiel, co-founder of data analytics group Palantir, sold $175 million earlier this month, according to regulatory disclosures, his biggest sale since offloading $504 million of the company’s stock in February 2021.
Amazon founder Jeff Bezos sold 50 million shares worth $8.5 billion in February. Andy Jassy, Amazon’s chief executive, sold $21 million of stock this year, and Mark Zuckerberg, Meta’s chief executive, has been an ongoing seller: in early February, he sold 291,000 shares for $135 million, his first sale of that size since November 2021.
There are lots of good reasons for insiders to sell – diversification, paying taxes, divorce, funding new projects, etc. but it is seldom a positive sign when it quite suddenly ramps up to the extent it has this last quarter. That said, even the tech billionaires don’t know where the market is going to go. All we do know is that on raw valuations, sectors of the market are becoming a little frothy.
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