Short interest in the U.S. Canada markets increased by $77.9 billion, or +8.66%, to $977 billion in the first quarter of 2023. The increase in short interest was due to a strong market in the first quarter (S&P 500 up +6.41%, Nasdaq up +8.02% and Russell 3000 up +5.83%). The $77.9 billion increase was made up of $58.5 billion in shorted share price increases and an additional $19.4 million of new short selling.

The sectors with the largest increase in short exposure in the first quarter were Information Technology (+$28.4 billion), Consumer Discretionary (+$19.6 billion) and Industrials (+$8.2 billion). While the sectors with the largest decrease in short exposure were in the Energy (+$1.4 billion) and Utilities (+$773 million) sectors.

Short exposure is concentrated in several sectors: Information Technology ($174 billion), Consumer Discretionary ($154 billion) and Financials ($131 billion).

U.S.\Canadian Short Interest for the First Quarter 2023:

In January short sellers were buying-to-cover into rising markets, cutting their short exposure in the face of mounting mark-to-market losses. Short sellers were down -$92.7 billion in January mark-to-market losses, down -9.98% for the month. The largest amount of short covering occurred in the Energy, Communication Services and Consumer Discretionary sectors.

February saw the beginning of a short-side turnaround with mixed short covering and short selling in the sectors. Overall we saw $7.5 billion of new short selling. The Energy and Health Care sectors had increased short selling while Information Technology had short covering. Short sellers were up +$28.1 billion in February mark-to-market profits, up +2.96% for the month.

The mixed short covering and selling we saw in February was replaced with consensus short selling in March. Overall, we saw $44.4 billion in new short selling for the month with the Financial, Health Care and Information Technology sectors leading the pack. The Materials and Utilities sector were the only two sectors with moderate short covering. Shorts were up $97 million in March mark-to-market profits, up +0.10%.

While short sellers were increasing their equity short exposure with added short selling their ETF\Fund short exposure, although increasing in the first quarter, were partially offset with $4.5 billion of short covering. ETF\Fund short exposure increased to $227 billion, up $8.1 billion in the first quarter which was made up of a $12.6 billion increase in shorted share prices coupled with $4.5 billion of buy-to-covers.

ETFs with the largest first quarter increase in short selling:

ETFs with the largest first quarter increase in short covering:

Market wide Short Interest as a % of Float increased in the first quarter with SI % Float by seventeen basis points to 4.83%. The S3 SI % Float, which includes the synthetic long shares created by every short sale in the denominator, increased by fourteen basis points over the quarter, from 4.21% to 4.35%.

The sectors with the largest increases in SI % Float were Misc. (SPACs) up +1.41% and Energy up +0.63%. And the sectors with largest decreases in SI % Float were Utilities down -0.22% and Consumer Staples down -0.10%.

Stocks with over $100 million of short interest with the largest increase in SI % Float were: First Republic Bank (FRC) 1.76% to 30.86%; Allogene Therapeutics (ALLO) 32.08% to 53.96%; The Lovesac Co (LOVE) 15.16% to 36.25%; and C3.AI Inc (AI) 9.13% to 29.11%.

Stocks with over $100 million of short interest with the largest decrease in SI % Float were: Marathon Digital Holdings Inc (MARA) 40.87% to 28.73%; Columbia Banking System Inc (COLB) 14.21% to 2.36%; Lucid Group (LCID) 34.40% to 25.16%; and Figs Inc (FIGS) 19.13% to 10.87%.

Short sellers found it smore expensive, on average, to short stocks in the first quarter with the average stock loan fee increasing +14bps from 0.66% fee to 0.80% fee.

Stocks with over $100 million of short interest with the largest increase in stock borrow fees were: AMC Entertainment Holdings Inc (AMC) 44.32% to 164.07% fee; EVgo Inc (EVGO) 20.32% to 76.82% fee; Novavax Inc (NVAX) 5.07% to 41.57% fee; Upstart Holdings Inc (UPST) 24.32% to 49.07% fee; and First Republic Bank (FRC) 0.48% to 14.98% fee.

Stocks with over $100 million of short interest with the largest decrease in stock borrow fees were: MicroStrategy Inc (MSTR) 43.82% to 6.82% fee; Beyond Meat Inc (BYND) 102.57% to 75.07% fee; Blink Charging Co (BLNK) 24.32% to 8.82% fee; Fisker Inc (FSR) 24.82% to 12.32% fee; and Cassava Sciences Inc (SAVA) 15.32% to 10.57% fee.

Overall short sellers paid $1.91 billion in stock borrow fees in the first quarter of 2023 (calculated daily borrow cost using S3’s daily offer rate and daily shares shorted numbers) versus $1.54 billion in the fourth quarter 2022. The ten stocks that short sellers had the most conviction and paid the most to short made up 23% of the total borrow cost in the quarter. The stocks with the largest quarterly short financing costs were AMC -$225mm, BYND -$90mm, LCID -$59mm, MSTR -$55mm, GME -$46mm, UPST -$42mm, BBBY -$41mm, QS -$26mm, EVGO -$24mm and SIRI -$23mm.

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 March 31, for stocks with over $100 million of short interest were:

Short sellers were down $63.6 billion in first quarter net-of-financing mark-to-market profits, down -6.78%, versus down +$43.5 billion, -4.87%, in the fourth quarter of 2022.

There were 7,153 shorted equities with positive P\L, producing +$38.2 billion in mark-to-market profits, +11.53%. The five largest short-side winners in the fourth quarter were: SIVBQ (+$1.06bn +120.96%), FRC (+$776m +146.42%), SBNY (+$543m +153.84%), SCHW (+$443m +41.08%) and PFE (+$400m +22.69%).

There were 9,643 shorted equities with negative P\L, producing -$101.8 billion in mark-to-market losses, -16.80%. The five largest short-side losers in the fourth quarter were: TSLA (-$7.68bn -52.12%), NVDA (-$4.99bn -62.48%), AAPL (-$4.03bn -24.35%), META (-$2.49bn -21.04%) and MSFT (-$1.76bn -19.01%).

There were more unprofitable shorts than profitable shorts in the fourth quarter with 49% of all short positions adding negative numbers to a trader’s bottom lines, 36% with positive numbers and 15% were flat for the quarter.

Un-profitable sectors outnumbered profitable ones two-to-one with the most profitable sectors being Financials (+$2.8bn +2.23%) and Energy (+$2.8 billion +4.02%) and the least profitable being Information Technology (-$30.1bn -18.83%) and Consumer Discretionary (-$21.3bn -14.84%).

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