Insiders at U.S. companies accelerate "bottom fishing" - is it time to get on board with U.S. stocks?

According to Zhitong Finance APP, struggling U.S. stock bulls are receiving encouraging signals from company insiders. As the S&P 500 index fell in March, corporate insiders bought their own company's stock at the fastest pace in 16 months, and they continued to buy stocks rapidly after U.S. President Donald Trump launched global tariff measures that triggered a sharp decline in the stock market.

Data compiled by Washington Service shows that in the first two weeks of March, insiders from about 180 companies purchased their own company's stock, bringing the buy/sell ratio to 0.40, close to the highest level since the end of 2023. Although the reasons for executives buying stocks are usually unrelated to market performance, the increase in buying volume indicates their confidence in the company, providing reassurance to investors who have been battered by weeks of selling.

U.S. corporate insiders buy/sell ratio

Matt Lloyd, Chief Investment Strategist at Advisors Asset Management, stated, "This is a positive signal. Given the uncertainties in trade and the economy, investors remain trapped in a negative feedback loop. Therefore, the continuation of this trend is crucial as the stock market attempts to find its footing."

The growing optimism among corporate executives stands in stark contrast to the prevailing risk-averse sentiment. Investors' outlook on the economic prospects has reached the most pessimistic level in thirty years. Global fund managers are also feeling pessimistic about future prospects, with 82% of respondents in Bank of America's monthly global survey expecting a weakening global economy. The survey indicates that the number of respondents intending to reduce exposure to U.S. stocks has reached a record high.

The global trade war and potential economic recession could exacerbate inflation risks in the U.S. For this reason, Adam Phillips, Managing Director of Portfolio Strategy at EP Wealth Advisors, holds a cautious view on the trend of corporate insiders buying stocks.

Phillips stated, "Like many other companies, many of these companies are blind while waiting for clarity on trade policies."

Is it time to bottom-fish in U.S. stocks?

The buying and selling among corporate executives can provide clues about market direction. The insider buy/sell ratio surged significantly in August 2015 and at the end of 2018, with the former occurring before the market bottomed and the latter coinciding with the market bottom. In March 2020, the buying by corporate insiders accurately predicted the bottom of the bear market.

Historically, the number of sellers has exceeded the number of buyers, as executives typically view their stocks as a source of cash.

Earlier this year, corporate insiders timed the market pullback before the S&P 500 index peaked in mid-February. For most of January, they sold their company's stock at an unprecedented pace, then reversed this trend in the last few days of the month According to Bank of America data, the cash level has seen the largest two-month increase since the outbreak of the pandemic, which could be a good sign for the stock market as market sentiment improves. The funds they hold can be used to purchase stocks, and Plurimi Wealth Chief Investment Officer Patrick Armstrong believes that now is the time to establish stock exposure.

Armstrong stated, "Insiders are buying stocks, cash levels are continuously rising, and market sentiment is extremely pessimistic. These are early indicators that the market sell-off is making stocks more attractive."