WEEKLY MARKET COMMENTARY
LPL Financial Member FINRA/SIPC Page 3 o 6
300250200150100500New U.S. Corporate Buyback Announcements by Quarter,
Corporations Are Buying Back Shares Aggressively
Source: LPL Financial, Bloomberg data 05/20/13
Corporations have become net buyers o shares as rising cash fow andwide prot margins compel them to shrink their share count to boostearnings per share as revenue growth slows.
In contrast to the buying they are directing their companies to undertake,insiders, or top executives o companies, have been net sellers o shares.While the pace o insider selling oten slows during the “blackout” periodsaround the earnings season, recent data show that the number o shareso S&P 500 companies’ insiders have sold relative to those that they havebought has soared. The main reason is that while selling has averaged abelow average $2 billion per month this year, buying has been way belowaverage and close to zero.Should this net selling be seen as an important signal by those “in theknow” o impending doom or corporate America? History oers a verydierent interpretation. Corporate insiders were buying in 2007 at the peak,and they were selling in 2009 as stocks were bottoming. Back in August o2007, around the peak o the stock market, insiders at nancial companieswere doing the most buying in 12 years. At the time, this trend wasinterpreted by some as a buy signal or nancials just beore the companiesin this sector saw their stocks all more than 80%. Given this track record,we do not interpret the insider selling as a signal that they are acting on anyinside inormation that would benet an individual investor. Instead, we seeit as another indicator o relative demand or stocks.
Pension plans, both dened benet and dened contribution, have been netsellers o stocks. The latest data rom the Federal Reserve (Fed) show that
Ater reducing purchases during thenancial crisis in 2008 and 2009 ascompanies were ocused on hoardingtheir capital, corporations havereturned to near-record levels o netshare repurchases.
*Data gathered rom Bloomberg reported SEC lings.