The U.S. stock market will produce a modestly positive return over the next 12 months. You might not think that’s particularly newsworthy. But it is when, as currently is the case, some on Wall Street are claiming that insiders have never been more bearish than they are now. If true that would be alarming, since insiders have keener insight into their companies’ prospects than the rest of us.
There are three categories of insiders, and only two are important for investors to follow, according to Seyhun: corporate directors and officers. Right now, according to his latest data, insiders in these two categories on balance are fairly close to being in the middle of their historical range between being extremely bullish or extremely bearish.
The chart below plots the insider statistic that Seyhun has found to have significant predictive power. It is the six-month moving average of the percentage of publicly traded companies for which there is net buying from officers and directors. Companies for which there is no insider buying or selling are ignored for purposes of calculating this statistic. Its latest value is 18%.