Market Insights: Net Insider Buying

Macroeconomic and Market Developments:

• North American markets were mixed this week. In Canada, the S&P/TSX Composite Index was up 0.20%. In the U.S., the Dow Jones Industrial Average was down 0.94% and the S&P 500 Index declined 1.20% this week.
• The Canadian dollar was strong this week, closing at 79.41 cents vs 78.62 cents USD last Friday.
• Oil prices were higher again this week, despite an announcement from OPEC that the consortium will increase oil production. U.S. West Texas crude closed at $120.31 vs $115.07 USD last Friday, and the Western Canadian Select price closed at $99.53 vs $97.09 last Friday.
• The gold price was flat this week, closing at $1,851 vs $1,854 USD last Friday.
• Cenovus Energy (CVE) and its partners have agreed to restart the West White Rose Project offshore from Newfoundland and Labrador. The first shipments of oil from the platform are anticipated in the first half of 2026, with peak production anticipated to reach approximately 80,000 barrels/day (45,000 barrels/day net to Cenovus) by the end of 2029.
• Yamana Gold (YRI) has entered into an agreement to be sold to South Africa’s Gold Fields in a share-for-share exchange transaction. The proposed takeover values all of the issued and outstanding Yamana shares at approximately $6.7 billion.
• Canadian Real GDP rose 3.1% in the first quarter of 2022, which was below estimates for a 4.9% increase. GDP rose month-over-month by 0.7% in March beating forecasts of a 0.4% lift, following a 0.9% expansion in February. Statistics Canada also estimated that GDP increased 0.2% in April. Canada's current account balance recorded a massive $5.0 billion surplus in the first quarter of 2022, way above expectations, after posting a small deficit of $137 million in the previous quarter.
• On Wednesday morning, the Bank of Canada surprised no one with an increase to the bank rate of 0.50% to a level of 1.50%. Expectations continue to look for another 0.50% rate hike at the next meeting on July 13th, bringing the rate to 2.0%, which would be the highest level since before the Global Financial Crisis.
• The U.S. ISM Manufacturing Index increased to 56.1 in May, beating the expected 54.5 (levels higher than 50 signal expansion; levels below 50 signal contraction). The major measures of activity were mixed in May, but nearly all stand above 50, signaling growth. The production index rose to 54.2 from 53.6 in May, while the new orders index increased to 55.1 from 53.5.
• The U.S. The ISM Non-Manufacturing (Services) index slowed to 55.9 in May, missing the expected 56.5. The major measures of activity were mixed in May, but all stand above 50, signaling growth. The new orders index rose to 57.6 from 54.6, while the business activity index dropped to 54.5 from 59.1.
• Sheryl Sandberg who is the Chief Operating Officer of Meta Platforms (FB), the parent company of Facebook, Instagram and WhatsApp, is stepping down in the fall. Sandberg will remain on the board of directors and Javier Olivan, who has led the company’s growth efforts for years, will take over as COO.
• On Friday, U.S. employment numbers for May were released. The U.S. economy added 390,000 jobs in May, beating the expected 328,000. The unemployment rate held steady at 3.6% compared with a forecast for the rate to drop to 3.5%
• Here is a link to a short video from Canaccord’s chief U.S. Strategist Tony Dwyer entitled Still Expecting Further Upside to Summer Rally: DWYER VLOG

Weekly Diversion:

Love him or hate him, but this walk through Conner McDavid’s house is worth the watch.

Charts of the Week:

We have been discussing negative sentiment and inflation recently but wanted to change gears a bit this week to show what company executives (insiders) are doing in the United States. This falls in line with our recent weekly comments back on May 5th about Warren Buffett, where we noted that in the first quarter he bought up $41.5 billion dollars worth of net equities with 80% of those buys occurring during a volatile three-week stretch when the stock market was bottoming on a short-term basis. In other words, we said, “It is often said that the stock market is one of the only places where investors don’t like bargains. When markets were going higher, everyone was lined up to buy last year at more elevated levels, only to then sell at depressed levels. It is also said during volatile periods like the present, money shifts from weak hands (retail investors) to strong hands (institutional investors). Buffet is one investor who has bucked the conventional approach of many investors and consistently has used weakness as an opportunity.” We are not saying that all big company insiders are nearly as good of investors as Warren Buffett, but we do know that company insiders have considerable knowledge of forward-looking revenue and earnings, the sector environment within which they operate and the current macroeconomic risks we face. Therefore, if they are buying up their own company’s stock, it does show that they are finally convinced this is a good time to buy. Typically, insider buying picks up and peaks near market bottoms, at least on a short- or intermediate-term basis. Sometimes they can be a little bit early, but it is a good sign nonetheless. This is the opposite to retail investors, who tend to sell at those times.

Corporate executives this month have bought shares in their companies at a rate not seen since the early days of the Covid-19 pandemic in what some Wall Street analysts said was an encouraging sign for the U.S. stock market at that time. Between the start of the month and May 24th, insider buying of S&P 500 companies and for the broader Russell 2000 index has been the strongest since March 2020, according to figures from VerityData (FT.com).

Here is a short-term chart from another source that shows the same thing - that May is the largest insider buying month in over two years. According to Bloomberg, Dave Lutz of JonesTrading Institutional Services reports that “the number of tech insiders who bought shares in May is on track to hit the highest level in at least two years, according to data compiled by the Washington Service, after purchases cratered the month before when the Nasdaq 100 Index suffered its biggest monthly drop in more than a decade.”

This is a solid indication that there is strong institutional support near current levels. We said the same thing in our comments on May 5th when we noted “This is likely one of the key reasons why we saw the rally off that early March low, with institutions stepping in at those levels. The rally has since pulled back, but these same institutions could view this same level as an area of opportunity, and as a result, support for the market. One of Buffet’s famous quotes is: ‘Be fearful when others are greedy. Be greedy when others are fearful.’” At the time we said that institutional buyers could view this same level (March lows) as an area of opportunity over the long-term. The market did pull back in May to slightly below those levels, but it is still encouraging to see a more than two-year high in insider buying this past May as a sign there is important support around there and perhaps it is a set up for a summer-time bounce.

Sources: CNBC.com, Globe and Mail, Financial Post, Connected Wealth, BNN Bloomberg, Tony Dwyer, Canaccord Genuity, First Trust, JPMorgan, Bloomberg, Washington Service, JonesTrading, Financial Times