Short interest in the domestic market increased by $118.8 billion, or +12.7%, to $1.06 trillion in the fourth quarter of 2023. The increase in short interest was due to an up-trending market in the fourth quarter (S&P 500 up +11.2%, Nasdaq up +13.6% and Russell 3000 up +11.6%). The $118.8 billion increase consisted of $103.9 billion in shorted share price increases with an additional $14.9 million of new short selling.

Short exposure continues to be concentrated in several sectors: Information Technology ($214 billion), Consumer Discretionary ($172 billion), Financials ($132 billion) and Health Care ($128 billion). The sector with the largest increase in short exposure was in Information Technology (+$40 billion) and Consumer Discretionary (+17 billion) while we only saw a decrease in short exposure in the Misc. (SPACs) sector (-$9 million).

Short activity in the fourth quarter more than offset the $35.3 billion decrease in short interest we saw in the third quarter with slightly less new short selling than the $18.0 billion of short selling in the third quarter.

Information Technology had the most short selling in the fourth quarter with $10.42 billion of additional short selling followed by $4.4 billion of new short selling in the Energy and Industrial sectors. Short sellers were trimming exposure in the Financial (-$6.9 billion), Real Estate (-$4.0 billion) and Materials (-$3.0 billions) sectors.

Market wide Short Interest as a % of Float decreased in the fourth quarter with SI % Float decreasing by fourteen basis points to 4.92%. The S3 SI % Float, which includes the synthetic long shares created by every short sale in the denominator, decreased by twelve basis points over the quarter, from 4.54% to 4.42%.

The sectors with the largest increases in SI % Float were Utilities up 0.56% and Communication Services up +0.31%. The sectors with largest decreases in SI % Float were Misc. (SPACs) down -0.85%, Energy down -0.63% and Real Estate down -0.48%.

Stocks with over $100 million of short interest with the largest increase in SI % Float were: B. Riley Financial Inc (RILY) 23.06% to 62.46%; Atmus Filtration Technologies (ATMU) 12.81% to 30.24%; Sphere Entertainment Co (SPHR) 9.30% to 23.99%; Dyne Therapeutics Inc (DYN) 17.70% to 30.98%; and A-Mark Precious Metals Inc (AMRK) 9.87% to 21.02%.

Stocks with over $100 million of short interest with the largest decrease in SI % Float were: Cava Group Inc (CAVA) 54.89% to 13.46%; Nikola Coup (NKLA) 28.77% to 15.79%; Permian Resources Corp (PR) 22.70% to 11.78%; Marathon Digital Holdings Inc (MARA) 29.47% to 19.22%; and Springworks Therapeutics (SWTX) 29.65% to 19.44%.

Stock borrow fees recouped a quarter of the twenty-seven basis point decrease we saw in the third quarter with a seven basis point increase to an average of 0.64%.

Overall, short sellers paid $1.45 billion in stock borrow fees in the fourth quarter of 2023 (calculated daily borrow cost using S3’s daily offer rate and daily shares shorted numbers) versus $1.78 billion in the third quarter.

The ten stocks that short sellers had the most conviction and paid the most to short made up 21% of the total borrow cost in the quarter. The stocks with the largest quarterly short financing costs were: SIRI (-$77mm), SAVA (-$38mm), LCID (-$30mm), BYND (-$30mm), CAVA (-$27mm), FSR (-$25mm), VFS (-$22mm), NVAX (-$22mm), AI (-$20mm), and XPEV (-$16mm).

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 December 29th, for stocks with over $100 million of short interest were:

Stocks with over $100 million of short interest with the largest increase in stock borrow fees were: Beyond Meat Inc (BYND) 25.07% to 97.82% fee; Sunoco LP (SUN) 2.07% to 62.57% fee; Cassava Sciences Inc (SAVA) 8.05% to 47.03% fee; ImmunityBio Inc (IBRX) 7.25% to 41.59% fee; and Sirius XM Holdings (SIRI) 13.40% to 36.60% fee.

Stocks with over $100 million of short interest with the largest decrease in stock borrow fees were: Nikola Corp (NKLA) 36.32% to 4.82% fee; Lundin Mining Corp (LUMI) 27.50% to 7.25% fee; ChargePoint Holdings Inc (CHPT) 21.07% to 3.82% fee; MapleBear Inc (CART) 21.32% to 6.57% fee; and Fisker Inc (FSR) 22.82% to 8.82% fee.

With markets on an uptrend for most of the quarter every sector besides Energy was un-profitable on the short side.

Short sellers were down -$116.3 billion in fourth quarter net-of-financing mark-to-market losses, down -11.89%, versus up +$42.3 billion, +4.43%, in the third quarter of 2023. With the Russell 3000 up +11.6% for the quarter, short sellers performed at market expectations.

Four-fifths of every dollar shorted was un-profitable in the fourth quarter. 19.7% of all stocks shorted were profitable, 80.2% were unprofitable and 0.1% were flat for the quarter.

There were 5,398 shorted equities with positive P\L, producing +$20.33 billion in mark-to-market profits, +10.52%. The five largest short-side winners in the fourth quarter were: XOM (+$1,003mm +14.6%), BABA (+$439mm +12.95%), CHTR (+$436mm +12.5%), PLUG (+$424mm +55.3%) and FSR (+$383mm +122.7%).

There were 7,594 shorted equities with negative P\L, producing -$136.7 billion in mark-to-market losses, -17.4%. The five largest short-side losers in the fourth quarter were: MSFT (-$2,542mm -15.5%), COIN (-$2,239mm -92.2%), AAPL (-$2,198mm -11.4%), AMZN (-$2,020mm -17.3%) and AMD (-$1,886mm -39.8%).

The market has continued the upward trend in January 2024 that started at the end of October 2023. Short selling and covering has been mixed so far in 2024 among sectors as short sellers rebalance their portfolios. Increased short selling in the Health Care, Financial, Materials and Consumer Staples sectors has been offset with short covering in Consumer Discretionary and the Industrial sectors. Overall, total short interest at the end of January declined by $21 billion, to $1.03 trillion which was made up of $20.6 billion in shorted share price decreases coupled with a slight increase of $90 million in new short selling.

Short sellers actually had a profitably January with $5.8 billion of mark-to-market profits, a +0.6% return, even though the Russell 3000 was up +1.0%. There was a relatively equal amount of dollars shorted in profitable vs. unprofitable trades ($509 billion vs $530 billion) but the increased profitability in shorting the Consumer Discretionary, Materials and Real Estate sectors made it a profitable month for short sellers. Short sellers were good stock and sectors pickers in the first month of the year.

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