Corporate insiders are sitting out the 2024 stock-market rally

Corporate insiders have been reluctant to snap up shares of their companies. Of all U.S. companies with a transaction by an officer or director in July, only 15.7% reported net buying of company shares, according to InsiderSentiment.com. That was the lowest level in the past 10 years. The figure ticked up to 25.7% in August before falling to 21.9% in September, well below the 10-year average of 26.3%.

Followers of insider sentiment believe the trades of company executives and board members, who ought to be well-informed about the prospects for their own businesses, can collectively provide a signal about the future performance of the market as a whole.

In recent months, that signal hasn’t been promising. It isn’t the only potential sign of caution. Berkshire Hathaway, helmed by Warren Buffett, has been building its cash position. Leaders of big tech companies including Jeff Bezos at Amazon.com and Mark Zuckerberg at Meta Platforms have sold billions of dollars of their companies’ shares this year.

“Insider trading is a very strong predictor of aggregate future stock returns," said Nejat Seyhun, a professor at the Ross School of Business at the University of Michigan. “The fact that they are below average suggests that the stock returns in the future will be below average as well."

Seyhun, who is an adviser to InsiderSentiment.com, said he believes corporate insiders are worried about a recession, which typically causes a major decline in stock prices. Economic data has generally looked decent, with inflation cooling and consumer sentiment improving.

But the unemployment rate ticked up earlier this year, and there are signs of strain among lower-income consumers.

So far in 2024, stocks have sailed higher, quickly recovering from any pullbacks. A rush into tech stocks that could profit from the boom in artificial intelligence morphed into a broader rally as many investors grew convinced that the Federal Reserve had tamed inflation without causing too much economic damage. The S&P 500 has advanced 21%, setting 43 record closes along the way.

JPMorgan Chase Chairman and Chief Executive Jamie Dimon is one prominent executive who has warned that the path ahead for the economy might be more difficult than many investors believe. In May, Dimon said he was cautiously pessimistic about risks to the global economy and thought the bank’s stock was priced high.

Investors will watch for banking executives’ insights into the economy when earnings season kicks off in earnest later this week. JPMorgan, Wells Fargo and Bank of New York Mellon are scheduled to report Friday, followed by Bank of America and Goldman Sachs on Oct. 15.

Some investors believe that insider selling isn’t an effective indicator, saying stockholders might unload shares to diversify their portfolios or free up cash, rather than because of a negative view about the stock.

A review of insider purchases, leaving aside sales, also appears to show little enthusiasm lately. Officers and directors of U.S. companies bought $2.3 billion of their companies’ stock this year through September, the lowest amount over such a period since 2014, according to data from the Washington Service. Last year, they bought $3 billion in the first nine months.

During the pandemic-induced selloff of early 2020, insiders raced to scoop up shares, buying nearly $1.3 billion in March alone. Some investors took it as a reassuring sign.

“The insider buying gave our firm confidence to put money to work in the stock market during an extremely challenging time," said Eric Diton, president and managing director at the Wealth Alliance.

This year, the largest insider trades have been sales by leaders of big tech companies.

Bezos, the founder and executive chair of Amazon, has sold stock valued at about $10.3 billion, while Michael Dell, chairman and chief executive officer of Dell Technologies, has sold $5.6 billion, and Zuckerberg, chairman and CEO of Meta, has sold $2.1 billion, according to Washington Service data. Shares of all three companies are up by double-digit percentages this year.

Palantir Technologies Chairman Peter Thiel and Nvidia CEO Jensen Huang are also among the top sellers. Both stocks have more than doubled in 2024.

Another development that has made some observers wonder at the market’s prospects: a famed investor’s buildup of cash.

Buffett’s Berkshire Hathaway sold stocks in the most recent disclosed period, slashing its mammoth stake in Apple. The Omaha, Neb., company’s cash pile grew to a towering $276.94 billion at the end of June.

“Investors should take notice," said David Harden, chief executive and chief investment officer of Summit Global Investments. “I don’t think you’d say he’s trying to time the market and look for pullbacks, but I am thinking he’s saying, ‘This is overvalued, and I value cash more than I value this investment.’"

Write to Karen Langley at karen.langley@wsj.com