War is the primary market driver, lifting Energy (XLE) by 13% while suppressing the S&P 500 and most other sectors due to supply chain and cost pressures.

Short interest is rising in both top-performing XLE (reversal) and bottom-performing XLI (momentum), with SI increases muted in the middle.

Energy dominates the top 20 performers like DVN and APA, while CVNA and Financials see shorts increasing as prices drop.

With the escalation of global conflict, the S&P 500 has dropped over 6% year-to-date, marking its steepest decline in three years.

Almost all sector ETFs are trading in the red, with the notable exception of Energy (XLE), which has gained 13% as surging crude prices bolster oil producers.

The Industrials (XLI), Healthcare (XLV), and Consumer Discretionary (XLY) sectors are the primary laggards, down 11%, 10%, and 9% respectively.

Healthcare supply chains remain heavily dependent on the Persian Gulf, and the sector is currently struggling with energy costs and legislative hurdles.

Discretionary stocks face a triple threat of unemployment concerns, fuel costs, and stretched valuations, while Industrials contend with AI disruption and tariff issues.

Aside from defense contractors, the war has disrupted shipping and exacerbated supply chain bottlenecks.

Ultimately, geopolitical risk has become a singular macro factor, or a "super-factor," affecting different sectors in unique ways.

Our proprietary short interest analytics allow us to look under the hood of these ETFs.

While we usually employ a linear fit, a curved fit better illustrates how both extreme upside and downside moves trigger increases in short interest.

The most significant short interest increase is found in the Energy sector, where investors are shorting into strength, treating them in a classic reversal pattern.

Conversely, XLI is seeing increased short interest as a momentum play while prices fall.

When examining individual S&P 500 members, 75% of the top performers are energy names.

Their average short interest of these names has risen 6%, confirming that the strategy of shorting into strength holds for both the ETF and its underlying constituents.

However, the correlation isn't perfect; APA appears to be undergoing a short squeeze with interest down 14%.

Meanwhile, Devon Energy (DVN) stands out with a 60% spike in short interest.

In the Consumer Discretionary space, individual short interest is up 5%, while Industrials and Financials remain relatively flat.

Shorting in Industrials is uniform, but cyclicals show a higher short interest concentration if the price is trending lower.

In the Financial sector, those down the most exhibit the largest short interest increase.

In consumer cyclical below the relationship is strong with underperformers experiencing increasing in short interest, in a momentum strategy.

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