August Busch III, an AT&T Inc board member since 1980, bought US$2.27 million of shares in the biggest US phone company last month, his largest purchase on record. Monsanto Co director William Parfet added to his holdings in the world's No. 1 seed producer for the first time in eight years.
Chief executive officers, directors and other senior officials in corporate America are buying more of their companies' shares than they are selling for the first time since 1995, prompting growing confidence the stock market is poised to rally for the rest of the year.
The last seven times insiders bought more than they sold, between 1988 and 1995, the Standard & Poor's 500 Index rallied an average 21 percent in the following 12 months, data compiled by the Washington Service, a Bethesda, Maryland-based research firm that tracks insider data for more than 500 mostly institutional clients, showed. The purchases show executives believe the worst may be over after stocks suffered the biggest January drop in 18 years on signs the economy is in a recession.
"If it's so bad, how come these guys are gobbling up their own companies' stock? That's the telltale indicator," said Fritz Meyer, 57, a Denver-based senior market strategist at AIM Advisors Inc, which manages about US$166 billion. "Companies are in the best possible position to assess the economic outlook."
Purchases by officers, directors and other senior managers of the 1,911 companies on the New York Stock Exchange reached US$683 million last month, US Securities and Exchange Commission filings compiled by the Washington Service showed.
Total purchases were 1.44 times more than sales, the first time in 13 years that insiders became net buyers, the data showed. The S&P 500, the benchmark for US equities, has not fallen in the 12 months after insiders bought more than they sold, Washington Service data that goes back 20 years showed.
Executives and directors may be underestimating the effect of the US economic slowdown on earnings, said Robin Hepworth, from Allchurches Investment Management Services.
Fourth-quarter profits dropped an average 25 percent for the 289 members of the S&P 500 that have reported so far, data compiled by Bloomberg showed. The economy expanded at a 0.6 percent annual rate in the quarter, half the pace of economists' forecasts, as home construction plunged and banks wrote off mortgage-related losses.
While executives step up buying, short sellers are betting against US companies like never before. The amount of short selling -- when traders sell borrowed shares expecting to buy them back after prices fall -- grew to 3.7 percent of the total shares on the NYSE last month, the highest since at least 1931.
Insiders "are being very brave," Hepworth said. "Against the backdrop of everything going on, this is one positive."
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