With the Nasdaq 100 Stock Index ($IUXX) (QQQ) set to post its largest quarterly gain this quarter in more than two years, signs of insider selling by company executives suggest the company bosses are less optimistic than other investors about the future earnings outlook of technology stocks. With the Nasdaq 100 up more than +18% this quarter, the insider selling raises a warning flag on future stock gains.
Data from the Washington Service showed that more than 1,000 insiders sold shares in their companies in Q1 of this year. That’s the highest amount of selling by insiders since Q4 of 2021 when the Nasdaq 100 was hitting record highs. The data also shows that insiders are buying less of their company’s shares, with just 66 executives buying stock in their companies in Q1, the lowest number of purchases in two years.
Company executives may be selling shares on waning confidence in earnings results ahead of an upcoming earnings season that may be less than stellar. According to data compiled by Bloomberg Intelligence, Q1 profits for technology companies in the S&P 500 ($SPX) (SPY) are expected to fall -12% from the same quarter last year
Despite this year’s rally in the Nasdaq 100, company executives have been net sellers of stocks, while other stock investors have been net buyers. Company executives sell stocks for many reasons, including diversification or tax purposes. Usually, such selling is often well timed. For example, an increase in insider selling in late 2021 proved prescient ahead of last year’s plunge in the Nasdaq 100 from record highs.
The selling of company shares by insiders may be a worrying sign ahead of the Q1 earnings season that begins next month. Jones Trading said they are taking notice of the selling of stocks by company executives, saying, “these are very well-informed insiders of businesses. So when they’re selling things down, that obviously means their outlook for the intermediate future is underwhelming, or they’re unimpressed by their prospects.”
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