The "danger signal" behind the ten record highs in the U.S. stock market in July: corporate executives are selling their own stocks like crazy

According to Zhitong Finance APP, in July, investors flocked to the U.S. stock market, leading the S&P 500 index to set 10 historical highs within a month. However, there is one important group that is going against this trend: corporate executives. According to data collected by Washington Service, last month, only 151 companies in the S&P 500 index had insiders buying company stock, which is the lowest level since at least 2018. Although insider selling slowed down in July compared to June, the decline in buying was even greater, resulting in the buy-sell ratio reaching its lowest level in a year.

The decline in executives' preferences occurred at a time when the stock market's upward momentum seemed to be gradually weakening, even before the sell-off on Friday. After a 5% increase in June and a 6.2% increase in May, the S&P 500 index rose by 2.2% in July. However, the surge over these three months suddenly made the S&P 500 index appear overvalued, with its price-to-earnings ratio approaching 23 times (well above the 10-year average of about 18 times).

Therefore, the cautious attitude taken by corporate leadership (as they know their companies best) may indicate concerns about their own market valuations, as well as worries that the comprehensive global tariff policy implemented by President Trump could negatively impact company performance.

Dave Mazza, CEO of Roundhill Investments, stated, "Currently, corporate executives are behaving quite similarly to institutional investors: acting cautiously, conservatively, and being very sensitive to valuations."

In addition, economic data is becoming increasingly concerning. The latest employment report released on Friday shows that the labor market is slowing down, with significant deceleration in job growth over the past three months, and the unemployment rate also rose last month. Moreover, the inflation indicator favored by the Federal Reserve saw its fastest growth rate of the year in June, while consumer spending has barely increased.

Divergence from Market Sentiment

Of course, investors need to be cautious when interpreting insider buying and selling behaviors, as there may be other factors at play beyond market performance. However, the lack of enthusiasm among corporate executives for their own company stocks stands in stark contrast to the generally heightened risk appetite on Wall Street in July. The S&P 500 index has not seen three consecutive months of gains in nearly a year, and since the low on April 8, the index has surged over 25%.

Additionally, corporate buyback activity slowed down last month, and since July 25, it has been below the usual seasonal levels for four consecutive weeks, according to the latest data from Bank of America Group strategist Jill Carey Hall and others The company acknowledges that one reason for this situation may be the delay in the start of the earnings report season due to the holiday on July 4th. However, analysis by Carey Hall shows that since March, the proportion of stock buybacks relative to market capitalization has been continuously declining, indicating that "rising interest rates and valuation levels may finally be impacting corporate sentiment."

Mazza stated, "The hesitation regarding buybacks suggests that they are more focused on protecting the company's balance sheet rather than signaling market confidence. Given the current market rally, this attitude is significant."

According to Sameer Samana, a senior global market strategist at Wells Fargo Investment Institute, analysts closely monitoring corporate stock buyback data may believe that corporate buyback behavior reflects market sentiment more than insider selling. This is because individuals often have ongoing funding needs and typically tend to adjust asset allocation from their concentrated stock holdings.

However, overall, the phenomenon of companies and their executives lacking confidence in their own stocks is indeed worth investors' attention. Samana remarked, "Those who know the company best are telling you that a lot of good news has already been discounted."