Is the stock market in trouble?

While it’s true that not every insider sale should be a cause for concern, the sheer volume and frequency of these sales can have a significant impact on market sentiment, which, in turn, can lead to short-term stock price dips and a sense of unease among retail investors.

2024 was one of the most active corporate insider selling years, with CEOs and prominent executives from companies like Nvidia (NASDAQ: NVDA), Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), and Tesla (NASDAQ: TSLA) offloading hundreds of millions worth of their respective shares.

Insider trading activity in 2024. Source: Barchart

Insider activity is a good signal for traders about the prospects of a particular firm or general stock market, as high volume buys by insiders before earnings reports, for example, indicate a strong performance.

U.S. politicians follow the same trend as corporate insiders

Despite corporate insider trades being often linked to a company’s performance or purely profit-taking, U.S. politician trades almost always carry some background information that is not known to the general public.

These include legislation, bills, and laws that could significantly impact a company’s stock performance, either negatively or positively.

U.S. politican's insider trading activity. Source: Barchart
U.S. politican’s insider trading activity. Source: Barchart

And even though the selling trend is not as prevailing as with the corporate insiders, the number of sales still outpaces the number of buys.

According to some experts, insider trading should be legalized

Some economists and legal scholars, including Milton Friedman, a Nobel laureate in Economics, argue for the repeal of laws against insider trading. They assert that insider trading based on material nonpublic information benefits investors by introducing new information into the market more quickly.

Friedman stated:

“You want more insider trading, not less. You want to give the people most likely to have knowledge about deficiencies of the company an incentive to make the public aware of that.” 

He believed traders should not be required to disclose their trades, as the market pressure from buying or selling is informative.

Other critics contend that insider trading is a victimless act involving a willing buyer and seller trading property the seller rightfully owns, with no obligation to refrain from trading even if there is information not available to the general public.

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