The stockmarket continues to trade in a narrow range as investors ponder what to do next.
Bloomberg carried a story yesterday which said that insiders (those involved in management and boards of companies listed on Wall Street) exited their holdings at the fastest rate in two years last month.
In fact insiders at half the 500 companies in the Standard & Poor’s 500 had sold shares since March 10, the day after the index hit a 12 year low.
Bloomberg said the insiders were taking advantage of the best market rebound for years.
Now. You’d think that if these insiders were believers, they’d be hanging around.
But the rebound since March has provided them with the first opportunity of consistently rising share values to sell and go to cash.
Wall Street is up 36% since early March.
Bloomberg reported "Insiders of Standard & Poor’s 500 Index companies were net sellers for 14 straight weeks as the gauge rose 36 per cent, data compiled by InsiderScore.com show.
"Sales by CEOs, directors and senior officers have accelerated to the highest level since June 2007, two months before credit markets froze, as the S&P 500 rebounded from its 12-year low in March.
"The increase is making investors more skittish because executives presumably have the best information about their companies’ prospects."
"Executives at 252 companies in the S&P 500 unloaded shares since March 10, with total net sales reaching $US1.2 billion, according to data compiled by Princeton, New Jersey-based InsiderScore, which tracks stocks.
"Companies with net sellers outnumbered those with buyers by almost 9-to-1 last week, versus a ratio of about 1-to-1 in the first week of the rally."
It’s not very confidence building for ordinary investors to see insiders bolting to the sidelines and cashing in some of their holdings.
Perhaps they know something about how there companies are going and how the forthcoming second quarter earnings season will go.
Thompson Reuters says it expects a 34% fall in earnings from S&P 500 companies. Alcoa is the first company to report on July 7.
Howard Silverblatt, the senior index analyst at Standard & Poor’s says average earnings per share on the S&P 500 for the coming quarter stand at $14.31, off 53 cents, or 3.6%, from the $14.84 estimated at the end of March.
Health-care stocks are expected to contribute the biggest share, more than 19%, of second-quarter EPS, followed by consumer staples, at 14.3%, according to the analyst.
Earnings for financial stocks are expected to fall year-over-year again, but recent revisions have pushed up estimates.
However, unlike the first quarter, there’s been no rush of banks seeking to point out how earnings were improving, as there was in the last month of the March quarter.
In recent weeks, analysts have raised forecasts for 490 companies and lowered forecasts for 457, according to analysts at Bespoke Investment Group, a US analysis group.
Sectors remain evenly split between positive and negative, with consumer staples and energy leading, and industrials and materials lagging.
Bespoke analysts say that of interest will be how the solid rise in commodities plays out.
Even after a pullback in portions of the commodity sector over the last fortnight (Copper fell 3.5% last week), most are still up year to date.
Copper is up the most with a gain of 63%, and oil is not far behind with a 60.8% gain.
Platinum, silver, orange juice, coffee, and gold are other commodities that are up year to date. Corn is down 5.7%, wheat is down 11%.
And the AMP’s Dr Shane Oliver points out that short term worries about the impact to higher mortgage rates and oil prices, capital raisings, rising unemployment and the strength of the recovery are all likely to ensure that the ride for shares over the next few months will be more volatile than the last three months have been.
He also says investors should be aware that the period from now to September/October is often rough for shares.
"Selling shares to lock in capital losses may be an additional potential negative for the Australian share market in the run up to June 30," he said.
"As such the current correction may have further to run. However, notwithstanding a bit of renewed short term uncertainty, the broad trend in shares is likely to remain up.
"Shares are still very attractive compared to low yielding cash and bonds, most investors are still underweight shares and a further improvement in economic data is likely as we head towards an economic recovery from later this year.
"Our view remains that shares have embarked on a cyclical recovery that has further to run, Dr Oliver said.
"Bond yields are likely to fall in the short term as inflation continues to fall and as it becomes obvious that central banks are not going to be raising interest rates any time soon. But the medium-term return potential from bonds is very poor.
"After surging to a high of $US0.8263 in early June the Australian dollar is vulnerable to a further period of correction as investors wait for fundamentals to catch up.
"However, the broad trend in the Australian dollar is likely to remain up on the back of strengthening commodity prices and a resurgence in carry trades. The $A is likely to rise to around $US0.85 by year end."
