Mar 27, 2023
Although equities broadly are starting the new week higher, the most heavily shorted stocks are trading lower today. In the chart below, we show the relative strength of an index of the 100 most heavily shorted stocks versus the Russell 3,000 since January 2021 (the peak of the meme stock mania). Overall, the past couple of years since that period have consistently seen heavily shorted names underperform as seen through the downward trending line below. Although heavily shorted names saw some outperformance in January, they are making new lows.
On Friday, the latest short interest data as of mid-March was released by FINRA. Overall, there has not been too much of a change in short interest levels with the average reading on short interest as a percentage of float of Russell 3,000 stocks rising by 5 bps since the start of the year to 5.8%.
Prior to the changes to industry classifications that went into effect one week ago, the formerly labeled “retailing” industry consistently held the highest levels of short interest. Now, it is the Consumer Discretionary Distribution and Retail industry in the top spot with an average short interest level of 12.7%. That is up from 12.5% coming into the year and is multiple percentage points higher than the two next highest industries: Pharmaceuticals, Biotechnology & Life Sciences (9.36%) and Autos (9.18%). In spite of the recent bank closures, the banking industry actually has the lowest average levels of short interest. That being said, the latest data as of March 15th would have only accounted for a few days following the collapse of SVB. As such, the next release scheduled for April 12th with end-of-month data will provide a better read on the recent banking trouble’s impact on short interest levels.
In the table below, we show the individual Russell 3,000 stocks with the highest levels of short interest as of the March 15th data. The sole two stocks with more than half of shares sold short are both Health Care names: Design Therapeutics (DSGN) and Allogene Therapeutics (ALLO). Both have seen short interest levels rise mid-single digits year to date. Other notables with high levels of short interest include some names that were briefly in vogue in recent years like Carvana (CVNA) and Beyond Meat (BYND). While short interest levels remain elevated, those are also two of the stocks listed below that have seen the largest declines in short interest this year which is likely due to solid appreciation in their stock prices. Only Marathon Digital (MARA) has seen a larger drop with its short interest level falling 11.4 percentage points since the end of last year after the stock more than doubled year to date. We would also note another crypto-related name, MicroStrategy (MSTR), is on the list and has been the second-best performer of the Russell 3,000 stocks with the highest short interest.
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Mar 24, 2023
We are now three years out from the COVID Crash low, and even with the past year’s weakness, most assets continue to sit on solid gains. For major US index ETFs, the S&P Midcap 400 (IJH) is up the most having slightly more than doubled while the S&P Smallcap 600 (IJR) is not far behind having rallied 95.9%. Value has generally outperformed growth, especially for mid and small-caps although that has shifted somewhat this year. For example, while its gains have been more middling since the COVID crash, the Nasdaq 100 (QQQ) has been the strongest area of the equity market in 2023 thanks to the strength of sectors like Tech (XLK) and Communication Services (XLC). Although those sectors have posted strong gains this year, they have been the weakest over the past three years while Energy (XLE) far and away has been the strongest asset class. Paired with the strength of energy stocks has been solid runs in commodities (DBC)more broadly with the notable exception being Natural Gas (UNG) which has lost over 40%. Bond ETFs are similarly sitting on losses since the COVID Crash lows. As for international markets, Mexico (EWW) and India (PIN) have outpaced the rest of the world although Emerging Markets (EEM) as a whole have not been particularly strong; likely being dragged on by the weaker performance of China (ASHR) which holds a large weight on EEM.
Taking a look at current S&P 500 members, nearly half of the index has more than doubled over the past three years. As for the absolute best performers, Energy stocks dominate the list with four of the top five best-performing S&P 500 stocks coming from that sector. Targa Resources (TRGP) has been the absolute best performer with a nearly 900% total return. Other notables include a couple of heavy weight stocks: Tesla (TSLA) and NVIDIA (NVDA) with gains of 563.9% and 412.9%, respectively.
On the other end of the spectrum, there are currently 25 stocks that have posted a negative return since the COVID Crash low. The worst has been First Republic Bank (FRC) which has been more of a recent development. Whereas today the stock has posted an 83.1% loss, at the start of this month it would have been a 65% gain. Another standout on the list of worst performers has been Amazon (AMZN). Most other mega caps have more than doubled since the March 2020 S&P 500 low, however, the e-commerce giant has hardly offered a positive return.
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Mar 24, 2023
The first quarter of 2023 is coming to a close next week, and checking in on year to date performance, there has been a big divergence between the winners and losers. Although the S&P 500 is up 2.84% on the year as of yesterday’s close, only three of the eleven sectors are higher. Not only are those three sectors up on the year, but they have posted impressive double digit gains only three months into the year. Of those three, Consumer Discretionary has posted the smallest gain of 10% whereas Technology and Communication Services have risen 17.2% and 18.1%, respectively. The fact that these sectors are home to the main mega cap stocks — like Apple (AAPL), Amazon (AMZN), and Alphabet (GOOGL), which have been on an impressive run of late — helps to explain how the market cap weighted S&P 500 is up on the year without much in the way of healthy breadth on a sector level.
One thing that is particularly remarkable about this year’s sector performance is just how rare it is for a sector to be up 10%+ (let alone 3) while all other sectors are lower. And that is for any point of the year let alone in the first quarter. As we mentioned in yesterday’s Sector Snapshot and show in the charts below, going back to 1990, there have only been two other periods in which a sector has risen at least 10% YTD while all other sectors were lower YTD. The first of those was in May 2009. In a similar instance to now, Consumer Discretionary, Tech, and Materials were the three sectors with double digit gains back then. With those sectors up solidly, the S&P 500 was little changed on the year with a less than 1% gain. As you can see below, though, by the end of 2009, every sector had pushed into positive territory as the new bull market coming out of the global financial crisis was well underway.
The next occurrence was much more recent: 2022. Obviously, it was a tough year for equities except for the Energy sector which had a banner year. Throughout most of the year, the sector traded up by well over 20% year to date even while the rest of the equity market was battered.
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