Author:
Ihor Dusaniwsky
Managing Director of Predictive Analytics, S3 Partners
Matthew Unterman
Director of Predictive Analytics, S3 Partners
Short interest in the domestic market decreased by $35.3 billion, or -3.6%, to $936 billion in the third quarter of 2023. The decrease in short interest was due to a down-trending market in the third quarter (S&P 500 down -3.7%, Nasdaq down -4.1% and Russell 3000 down 3.6%). The $35.3 billion decrease consisted of $53.3 billion in shorted share price decreases with an offsetting $18.0 million of new short selling.
Sector (in $ millions)
9/30/23 Short Interest
3rd. Qtr. Change Short Interest
3rd. Qtr. Change Shares Shorted
Communication Services
$63,367
($2,550)
$354
Consumer Discretionary
$154,278
($8,982)
($954)
Consumer Staples
$43,352
($235)
$2,814
Energy
$77,538
$13,852
$7,877
Financials
$117,776
($2,973)
($445)
Health Care
$116,625
($5,517)
$8,956
Industrials
$99,224
($10,895)
($3,147)
Information Technology
$174,054
($13,646)
($1,421)
Materials
$35,487
$527
$3,302
Misc. (SPACs)
$68
$12
$8
Real Estate
$34,717
($3,610)
($391)
Utilities
$19,908
($1,304)
$1,026
Total U.S.\Can Short Int
$936,394
($35,320)
$17,980
Short exposure continues to be concentrated in several sectors: Information Technology ($174 billion), Consumer Discretionary ($154 billion), Financials ($117 billion) and Health Care ($117 billion). The sector with the largest increase in short exposure was Energy (+$14 billion) while we saw a decrease in short exposure in the Information Technology (-$14 billion), Industrials (-$11 billion) and Health Care (-$6 billion) sectors.
July saw a continuation of the $32 billion of short covering we saw in June with $37.1 billion of new buy-to-covers during the month. Consumer Discretionary led the field by a large margin with $14.0 billion of short covering, followed by Information Technology (-$9.3 billion) and Industrials (-$6.0 billion).
The rest of the third quarter saw increased short selling into a declining market as short sellers looked to back up their winning bets. August had $25.7 billion of new short selling, led by Health Care (+$7.8 billion) and Energy (+$6.21 billion) which was slightly offset with $3.2 billion of short covering in Financials. September saw slightly more short selling, +$26.9 billion, with Consumer Discretionary (+$8.0 billion) and financials (+$5.5 billion) leading the way and only Communication Services with short covering (-$1.1 billion).
Market wide Short Interest as a % of Float decreased in the third quarter with SI % Float decreasing by thirteen basis points to 5.07%. The S3 SI % Float, which includes the synthetic long shares created by every short sale in the denominator, decreased by ten basis points over the quarter, from 4.63% to 4.53%.
Sector
6/30/23 SI % Float
9/26/23 SI % Float
6/30/23 S3 SI % Float
9/26/23 S3 SI % Float
Communication Services
4.64%
4.10%
4.16%
3.76%
Consumer Discretionary
7.13%
7.08%
6.22%
6.23%
Consumer Staples
4.53%
4.73%
3.99%
4.13%
Energy
4.74%
5.27%
4.38%
4.82%
Financials
4.38%
3.97%
3.91%
3.60%
Health Care
6.52%
6.18%
5.74%
5.46%
Industrials
5.23%
5.19%
4.71%
4.64%
Information Technology
4.07%
3.94%
3.69%
3.59%
Materials
3.72%
3.77%
3.47%
3.51%
Misc. (SPACs)
4.27%
5.81%
4.52%
6.69%
Real Estate
5.52%
5.28%
5.00%
4.77%
Utilities
2.96%
2.97%
2.81%
2.87%
3rd Qtr. SI & S3 SI % Float
5.18%
5.05%
4.63%
4.53%
The sectors with the largest increases in SI % Float were Energy up 0.53% and Consumer Staples up +0.20%. And the sectors with largest decreases in SI % Float were Communication Services down -0.54% and Financials down -0.41%.
Stocks with over $100 million of short interest with the largest increase in SI % Float were: SunPower Corp. (SPWR) 17.26% to 36.05%; Hawaiian Electric Industries (HE) 1.47% to 14.79%; Sovos Brands Inc (SOVO) 4.67% to 17.57%; Archer Aviation Inc (ACHR) 12.44% to 24.30%; and Mirum Pharmaceuticals Inc (MIRM) 11.67%^ to 22.92%.
Stocks with over $100 million of short interest with the largest decrease in SI % Float were: AMC Entertainment Holdings Inc (AMC) 26.75% to 8.82%; Allogene Therapeutics Inc (ALLO) 49.34% to 31.86%; Lucid Group Inc (LCID) 40.93% to 25.00%; Carvana Co (CVNA) 51.67% to 37.66%; and Symbotic Inc (SYM) 37.41% to 26.46%.
Stock borrow fees decreased in the third quarter, decreasing by twenty-seven basis points to an average of 0.57% fee.
Sector
6/30/23 Stock Borrow Fee
9/26/23 Stock Borrow Fee
Communication Services
2.70%
0.61%
Consumer Discretionary
0.68%
0.67%
Consumer Staples
1.02%
0.59%
Energy
0.62%
0.41%
Financials
0.67%
0.48%
Health Care
0.75%
0.72%
Industrials
0.94%
0.72%
Information Technology
0.62%
0.46%
Materials
0.69%
0.65%
Misc. (SPACs)
18.05%
22.04%
Real Estate
0.45%
0.41%
Utilities
0.36%
0.39%
3rd Qtr. Stock Borrow Fees
0.84%
0.57%
Overall, short sellers paid $1.78 billion in stock borrow fees in the third quarter of 2023 (calculated daily borrow cost using S3’s daily offer rate and daily shares shorted numbers) versus $1.94 billion in the second quarter.
The ten stocks that short sellers had the most conviction and paid the most to short made up 29% of the total borrow cost in the quarter. The stocks with the largest quarterly short financing costs were: AMC (-$238mm), SIRI (-$54mm), NKLA (-$50mm), BYND (-$38mm), KVUE (-$32mm), AI (-$31mm), FSR (-$24mm), CVNA (-$18mm), TSLA (-$17mm), and AAPL (-$15mm).
High stock borrow fees can test the conviction level of short sellers as financing costs can take a large bite out of expected Alpha. The highest stock borrow fees, as of September 29th, for stocks with over $100 million of short interest were:
Highest Stock Borrow Fees
Ticker
Short Interest
SI % Float
Borrow Fee
NIKOLA CORP
NKLA
$ 340,264,136
28.77%
36.32%
LUNDIN MINING CORP
LUMI
$ 141,640,623
3.03%
27.50%
BEYOND MEAT INC
BYND
$ 232,333,398
40.50%
25.07%
FISKER INC
FSR
$ 559,347,910
45.57%
22.82%
CHARGEPOINT HOLDINGS INC
CHPT
$ 360,570,596
26.40%
21.07%
CASSAVA SCIENCES INC
SAVA
$ 237,589,611
35.79%
16.57%
SIRIUS XM HLDGS
SIRI
$ 801,900,059
27.47%
14.32%
C3.AI INC
AI
$ 948,398,551
38.11%
11.57%
NOVAVAX INC
NVAX
$ 322,850,411
51.49%
10.57%
HERCULES CAPITAL INC
HTGC
$ 107,795,299
4.39%
8.57%
STEM INC
STEM
$ 177,037,328
29.83%
8.32%
SYMBOTIC INC
SYM
$ 212,506,259
26.46%
7.57%
BLACKSTONE MORTGAGE TR
BXMT
$ 706,835,586
19.92%
6.57%
LITHIUM AMERICAS ARGENTINA CORP
LAAC
$ 239,541,877
12.25%
6.57%
LUMINAR TECHNOLOGIES INC
LAZR
$ 274,638,410
25.48%
6.57%
ARCHER AVIATION INC
ACHR
$ 180,922,862
24.30%
5.82%
DUTCH BROS INC
BROS
$ 195,434,194
20.66%
5.82%
LUCID GROUP INC
LCID
$ 1,180,532,123
25.00%
5.82%
B. RILEY FINANCIAL INC
RILY
$ 157,085,337
23.06%
5.07%
OWL ROCK CAPITAL CORP
OBDC
$ 157,002,802
2.97%
4.82%
Stocks with over $100 million of short interest with the largest increase in stock borrow fees were: Fisker Inc (FSR) 11.31% to 22.82% fee; Cassava Sciences Inc (SAVA) 6.56% to 16.57% fee; ChargePoint Holdings Inc (CHPT) 12.06% to 21.07% fee; Stem Inc (STEM) 1.43% to 8.32% fee; and Blackstone Mortgage Trust (BXMT) 0.68% to 6.57% fee.
Stocks with over $100 million of short interest with the largest decrease in stock borrow fees were: AMC Entertainment Holdings Inc (AMC) 144.81% to 2.82% fee; Nikola Corp (NKLA) 147.81% to 36.32% fee; Beyond Meat Inc (BYND) 81.81% to 25.07% fee; Sirius XM Holdings (SIRI) 40.06% to 14.32% fee; and Dutch Bros Inc (BROS) 21.56% to 5.82% fee.
With markets on a downtrend for most of the quarter every sector besides Energy was profitable on the short side.
Sector (in $ millions)
9/30/23 Short Int
3rd. Qtr. MTM P\L
P\L%
Communication Services
$63,367
$1,933
2.99%
Consumer Discretionary
$154,278
$6,351
4.00%
Consumer Staples
$43,352
$2,871
6.60%
Energy
$77,538
($7,025)
-9.95%
Financials
$117,776
$994
0.83%
Health Care
$116,625
$12,488
10.46%
Industrials
$99,224
$6,668
6.37%
Information Technology
$174,054
$10,423
5.76%
Materials
$35,487
$2,234
6.34%
Misc. (SPACs)
$68
($15)
-24.42%
Real Estate
$34,717
$2,985
8.17%
Utilities
$19,908
$2,381
11.58%
Total U.S.\Can Short Int
$936,394
$42,288
4.43%
Short sellers were up +$42.3 billion in third quarter net-of-financing mark-to-market profits, up +4.43%, versus down -$59.3 billion, -6.05%, in the second quarter. With the Russell 3000 down -4.1% for the quarter, short sellers outperformed the market slightly with a +4.4% return.
Nearly two-thirds, 63%, of every dollar shorted was profitable in the third quarter. 57% of all stocks shorted were profitable, 37% were unprofitable and 7% were flat for the quarter.
There were 7,966 shorted equities with positive P\L, producing +$78.2 billion in mark-to-market profits, +12.8%. The five largest short-side winners in the fourth quarter were: AAPL (+$2,320mm +11.8%), MSFT (+$922mm +7.4%), TSLA (+$729mm +3.3%), JNJ (+$633mm +12.2%) and DXCM (+$560mm +33.1%).
There were 5,260 shorted equities with negative P\L, producing -$36.0 billion in mark-to-market losses, -10.1%. The five largest short-side losers in the fourth quarter were: PDD (-$823mm -33.3%), CVNA (-$688mm -45.9%), RIVN (-$665mm -32.7%), GOOGL (-$618mm -6.11%) and CHTR (-$611mm -17.5%).
Although the market has continued its downward trend in October, with the Russell 3000 down -4.5%, we are seeing a deceleration of additional short selling across the U.S. market. While total short interest has dipped to $871 billion on October 27, the $69 billion decrease in the value of shorted shares has only precipitated $4 billion of new short selling – short sellers are not building up their positions in these profitable trades. This may be an indication that short sellers are looking for a year-end rally and are not willing to increase their exposure in the short-side of the market.
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