The Most Shorted Names Suffer

Jan 16, 2024

Equities have generally been consolidating to start out 2024, but one group that has gotten outright punished is those stocks that possess the highest levels of short interest. In the chart below we’ve broken the large-cap Russell 1,000 into deciles (10 groups of 100 stocks each) sorted by the stocks with the highest to lowest short interest as a percent of equity float as of the end of last year and show each group’s average performance year to date.  Whereas the average stock in the index is down 2.34% so far this year, the 100 stocks in the index with the highest short interest levels are already down 8.76%. That is significantly more than the second most heavily shorted decile which has averaged a decline of only 2.81%.  Notably, the decile of least shorted stocks is actually up 0.41% so far this year on average.

Looking more closely at the decile of most heavily shorted stocks, it’s filled with names that have already fallen in excess of 20-30% YTD like EV-related names Lucid (LCID), Chargepoint (CHPT), and Plug Power (PLUG).  Solar stocks like Sunrun (RUN), crypto adjacent names like Coinbase (COIN), and meme stock mania names like AMC Entertainment (AMC) and GameStop (GME) also find themselves on this list and have already seen double digit declines year to date.

The most recent short interest data through the end of last year was released just last week. Below we show the average reading for each industry in the Russell 1,000. Across the whole of the index, the average stock has 3.87% of float shorted. Readings are close to or more than double that for Discretionary Retail and Autos at 9.1% and 7.6%, respectively.  Media & Entertainment, Transportation, and Consumer Services are the only other sectors that average more than 5% of float shorted.  Meanwhile, Insurance, Utilities, Banks, and Commercial and Professional Services are some of the least shorted industries.

As previously mentioned, some of the worst performing stocks this year have been those with the highest levels of short interest. In the table below, we show the 30 Russell 1,000 stocks that currently have the highest short interest as a percentage of float.  Recent IPO Maplebear, or Instacart (CART), tops the list with almost 29% short.  That is actually down versus the mid-December reading though back then it was again higher than any other Russell 1,000 member.  There are seven other names with more than a quarter of float shorted: Sirius XM (SIRI), Plug Power (PLUG), Lucid (LCID), Kohl’s (KSS), Medicap Properties (MPW), Birkenstock (BIRK), and Celsius (CELH).  One thing that is notable is that while many of these highly shorted stocks are underperforming, some exceptions are those that have more recently IPO’d.  For example, CART, BIRK, and CAVA are some of the few from this list that are up on the year.  Granted, their gains are not nearly as solid of Celsius (CELH) which has completely distanced itself from the rest of the pack, rising 11.4%.

Empire Collapses In Spite of Expectations

Jan 16, 2024

The economic data slate was light to kick off the holiday-shortened week with the only release of note being the NY Fed’s Empire State Manufacturing Survey.  The report came in catastrophically worse than forecasted.  Forecasts were calling for the index to improve from a reading of -14.5 in December up to -5 this month. Instead, the headline reading collapsed down to -43.7.  As shown in the chart below, that’s the lowest level since the spring of 2020 and before that, there was never a lower reading in the 20+ year history of the survey.

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Taking a look under the hood, below we show a breakdown of each category of the report as well as its reading the previous month, the month-over-month change, and how those rank (as a percentile) versus all months of the survey’s history.  Obviously, with only a couple of months with lower readings, the headline number is in the bottom 1% of all readings on record. The same goes for New Orders and Shipments which were the key drivers of weakness this month. Additionally, it is worth noting that each of those categories was already sitting at historically contractionary levels (ranking in or close to the bottom deciles of their respective historical ranges) in December.  While the month-over-month decline was much smaller in January, Unfilled Orders is also down near record lows.  That is not to say all areas of this month’s report deteriorated.  Delivery Times, Prices Paid, and Number of Employees each rose month over month as did nearly all categories for six-month expectations.

Again, the two biggest declines in January were New Orders and Shipments.  Like the headline number, the only period with lower readings was the spring of 2020.  The fresh low in Unfilled Orders has surpassed the onset of the pandemic for the lowest reading since November 2010.  Inventories are not exactly strong with the current level also in contraction, however, that category is much more elevated than others, currently ranking in the 30th percentile.

As previously noted, while current condition indices have collapsed, the same moves have not been observed for expectations. To quantify this dynamic, below we take the spread of each category’s current condition index and expectations index and average across each one.  As shown, the January reading dropped significantly and is now at historic lows. Again the only comparable lows to draw from were early on in the pandemic as well as late 2001, only a few months into the survey’s history.  That means New York area manufacturers have observed a material and significant slowdown in their businesses, but that has yet to show any impact on the level of optimism looking forward.