Since the Tax Cut and Jobs Act went into affect this year many corporations, including several of the largest, have been actively and aggressively buying back stocks. In fact, based on company reports, corporations are buying stocks back at a record rate of more than $5 billion a day.
With all the buybacks, most investors see it as sign of increased confidence by company CEOs. However, that is not really the case. If you take a closer look at what CEOs are doing with their own money, then it’s a much different story.
According to information obtained from regulatory filings by TrimTabs Investment Research, company executives sold $8.4 billion of their shares in the month of May, followed by another $9.2 billion in June. That’s the highest two-month period of sell-off amongst company insiders, over the last year.
Overall, during the second quarter, companies authorized $436.6 billion of stock buybacks. That beat the previous record of $242.1 billion by about 45 percent. That happened in the first quarter of 2018.
So why all the buybacks, and subsequent sell-offs by CEOs? When corporations buy back large amounts of stock it’s a boon for shareholders. Buybacks create constant demand, which helps increase share prices. It also inflates earning per share. Buybacks also benefit executives because many C-level executives receive most of their income in stock.