Short interest figures get published every two weeks, and movements in short interest are a helpful way to gauge bull/bear positioning on individual names as well as groups and sectors. When a stock has a high percentage of shares sold short, it means that a lot of investors are betting against it. If a highly-shorted company manages to produce better-than-expected results, however, shares will often see outsized gains as many of the ‘shorts’ rush to cover.
With bank failures and deposit flight emerging in March, causing two S&P 500 bank stocks to fail and many other regional bank stocks to fall precipitously, we were interested to see how short interest levels changed during the month. End-of-month short-interest figures for March were just recently published, and below is a table showing stocks in the S&P 1500 that saw the biggest increases in short-interest as a percentage of float (SIPF) during the month.
The two stocks that saw the biggest increases in short interest were First Republic Bank (FRC) and PacWest Bancorp (PACW). At the end of February, FRC only had 2.71% of its float sold short, but by the end of March, that figure had spiked to 29.51%. PACW’s jump in short interest was slightly less extreme, but extreme nonetheless, rising from 3.59% up to 20.56%. Another nine Financials sector stocks are on the list of the 30 S&P 1500 stocks that saw the biggest jumps in SIPF in March, while another five REITs made the list as well. That’s half the list!
Below is a better look at just how much short interest spiked in First Republic (FRC) during March. While the bank did see a mini-spike in late 2018 when the broader market was struggling with another batch of Fed tightening, FRC’s short interest normally sits between 0-5% of its float. Now it’s up to nearly 30%. For a stock that’s down 94% from its highs, where do you think the risk/reward lies at this point?
In terms of the most heavily shorted stocks, only Big Lots (BIG) currently has a higher percentage of its float sold short than FRC in the S&P 1500.
Below is a chart showing the average change in SIPF for stocks in the S&P 1500 by industry group in the month of March. Banks saw the biggest average jump at 0.78 ppts, followed by Telecom Services, Media & Entertainment, and REITs. Stocks in the Consumer Durables & Apparel group saw the largest decline in SIPF at -0.23 ppts.
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