Why major US CEOs are mass-selling their stocks on the stock exchange

Do Elon Musk, Jeff Bezos or even Mark Zuckerberg need pocket money to do their Christmas shopping? They are, in fact, part of a handful of bosses of large listed groups to have sold their shares in spades this year, and especially in November.

In all, CEOs and executives of companies in the S & P500 – the U.S. stock index of the top 500 listed companies – sold $ 63.5 billion in shares in November, found the Wall Street Journal, in an article published Thursday, December 9 which dissects the data on sales of shares by these business leaders. And since the start of the year, the 48 main executives of listed groups have raised more than $ 9 billion.

The “taxophobia” of business owners?

“What is happening right now is unprecedented,” admits Daniel Taylor, professor of accounting at the University of Pennsylvania and specialist in the stock market, interviewed by the Washington Post. “CEOs usually sell more shares at the end of the year, but not at such levels,” confirms Alexandre Baradez, head of market analysis for the financial consultancy firm IG France, contacted by France 24.

Transactions carried out in November by these business leaders were up 50% compared to the same period last year.

Some have even decided to reap the rewards for their actions for the first time in years. This is the case, for example, of Sergei Brin and Larry Page, the two co-founders of Google, who had not sold shares since 2017 and each pocketed around $ 1.5 billion by offloading ‘part of their titles.

Others have stepped on the accelerator, like Mark Zuckerberg. The Facebook founder has increased the number of shares sold this year seven-fold, most in November, compared to last year, earning him $ 4.5 billion.

This stock market fever that has won over the small world of managers is explained firstly “by the proximity of the change in the fiscal framework in the United States”, considers Alexandre Baradez.

The bosses fear, above all, the entry into force, scheduled for 2022, of a tax reform aimed at tax unrealized capital gains. This is, to put it simply, a measure proposed by the Biden administration to further tax billionaires through the stocks they own.

Hence a rush to sell shares before having to pay taxes on these participations. Tesla boss Elon Musk has been one of the biggest defenders of this unrealized gains tax plan. His Twitter poll, posted in early November, asking his followers if he should sell 10% of his Tesla shares was, in part, motivated by a desire not to have to pay too much tax if the new tax was born, recalls the New York Times.

With these sales of shares, “very wealthy taxpayers can hope to save up to $ 8 million in taxes every time they sell $ 100 million of shares before the tax reform takes effect.” , summarizes accounting expert Daniel Taylor at the Washington Post.

Silicon Valley in the lead

But this stock market frenzy is not due to the sole “taxophobia” of the top SP & 500. They also know “that current valuations are generous and anticipate that it will not continue to rise,” suggests Alexandre Baradez.

One of the reasons for this pessimism is the certainty of listed business leaders “that the US government will tighten the screws of social assistance,” said the analyst from IG France. The end of this aid risks not only slowing down household consumption, but for the wealthiest fringe of beneficiaries of these public subsidies, the money has often been reinvested in the financial markets. This is what has been called the “boom” of small investors during the health crisis, of which the GameStop episode was the most media illustration.

This appetite of individuals for the stock market “has contributed to the good performance of the stock market, and if aid is reduced this could have a stock market impact”, concludes Alexandre Baradez. Bosses and other executives are therefore looking to sell before it is too late and prices go wrong.

It is no coincidence either that the vast majority of leaders who shirk their actions come from the Tech sector. They sold nearly $ 41 billion in shares in November 2021 alone, or more than 60% of total sales, said the Wall Street Journal.

“It is as if a generation of leaders from Silicon Valley had reached maturity and wanted to take the opportunity to reassess the projects in which they are investing,” notes Alexandre Baradez.

In some cases, this quest for renewal is evident. Jeff Bezos, the boss of Amazon, “thus sold part of his titles to finance his space activities,” recalls Alexandre Baradez. The money raised by Mark Zuckerberg should help him boost the development of Facebook projects in the metaverse.

However, all of its sales are likely to have a wider effect on the market. “It is often said that when a boss sells shares in his own company, it is because he is no longer so optimistic about the future of his group,” recalls the analyst from IG France. Generally, this is a signal for the other shareholders who would then seek to get rid of their shares as well.

Hence the danger of stock market panic, especially in a situation where CEOs seem to have given themselves the word to sell their shares at the same time. But Alexandre Baradez does not believe it, because the motivations of the leaders have nothing to do with the confidence or not in the good fortune of their group, and the other investors understood it, according to him.

On the other hand, “it is clearly a sign that the time for stock market excesses for tech companies is over,” said this expert. After a golden decade where nothing seemed to be able to stop the surges in tech stocks, record sales of stocks indicate that executives themselves have come to believe that their sector is overheating in the stock market.