Daily Update: May 21, 2024

Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy.

Short Selling in the Crosshairs With the Return of Roaring Kitty

There are two sides to sports fandom. On the one side, there’s the fan who lives and dies by their team's success, cheering hometown favorites and mourning close-fought losses. On the other side, there’s the fan for whom the pleasure of seeing a rival team lose is equal to or greater than the pleasure of seeing their own team win. Certain teams, such as the New York Yankees, Manchester United and the Dallas Cowboys, seem to inspire the latter type of fandom. However, being a hater and cheering against rival teams is considered a bit dishonorable. Short selling is seen in much the same way: We would rather celebrate investors who spot technology companies on the way up than those who make money on business failure. 

A peculiar morality is at work here. If a company beats its earnings expectations, its stock price goes up. If a company underperforms, its stock price generally goes down. The mechanism of a short sale may account for the moral judgment attached to short selling. Short sellers borrow stocks they think will decline in value to sell them on the market. If the security’s price falls, the short seller buys back the stock at the lower price and returns it to the broker. The short seller sells high and buys low. To some retail investors, this inversion of the standard order of investment feels like manipulation.

The good news for these retail investors is that they have a weapon they can wield against large investors who engage in short selling: the short squeeze. If enough investors are willing to buy the security that the short seller has already borrowed and sold, then the price of the security goes up and the short seller must buy the stock back at a higher price than they sold it for. This means the short seller sells high and buys higher. 

Historically, a short squeeze was a way in which one large investor would hurt another large investor. One hedge fund manager could find out what security another hedge fund manager had shorted and drive up the price. However, the advent of meme stocks changed all that. Simply put, a meme stock is a well-known company, often in a direct-to-consumer category, that is promoted by retail investment influencers. The best known of these influencers is Keith Gill, also known as Roaring Kitty, and the best-known meme stock is in US video game retailer GameStop.

In 2021, GameStop, along with theater chain AMC, attracted a lot of short-selling attention from large investors. Roaring Kitty and other influential retail investors began to promote these companies through memes and other posts on platforms such as Reddit. The stock price of GameStop and AMC increased quickly in what has been described as “the biggest short squeeze ever.” 

In mid-May, after a period of comparative quiet, Roaring Kitty began promoting GameStop again, creating a considerable headache for short sellers once more. According to S&P Global Market Intelligence, this has caused short interest in GameStop and AMC to decline as investors fear another short squeeze. Short selling against consumer discretionary stocks recently hit a five-month high. Earlier this spring, Cinemark Holdings, another cinema chain, attracted a great deal of short interest. S&P Global Market Intelligence publishes a monthly report on the long/short market by sector, using S&P Global Market Intelligence's securities finance short interest data.

Today is Tuesday, May 21, 2024, and here is today’s essential intelligence.

Economy

Exploring the Characteristics of the Dow Jones US Select Dividend Index

Indices that not only track the broad equities market, but also offer the potential for enhanced dividends, may appeal to those searching for income within the equity asset class. In this blog, S&P Dow Jones Indices investigates what the Dow Jones US Select Dividend Index has historically brought to the table, including high dividend income, superior risk-adjusted performance over the long term, strong defensive characteristics in the face of market downturns and its current low valuation metrics versus the benchmark.

—Read the article from S&P Dow Jones Indices

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Capital Markets

China Securitization Performance Watch 1Q 2024: A Slow Start For Issuance

New securitization issuance fell 18% year on year in the first quarter of 2024 to Chinese renminbi 303 billion (US$42 billion). S&P Global Ratings expects issuance to stay flat in 2024, with the issuance momentum of dominant segments to slow.

—Read the article from S&P Global Ratings

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Global Trade

Niger's Maiden Crude Cargo Set To Load From Benin's Seme

Niger's maiden crude cargo is set to load at Benin's Seme port, according to sources and shipping data, turning the landlocked African country into an oil exporter less than a year after a military coup. Data from S&P Global Commodities at Sea showed the Front Cascade, a 1 million barrel capacity Suezmax, sitting just outside the Seme terminal in preparation to dock, as of 1330 GMT. Its destination was listed as a single point mooring registered to the West African Oil Pipeline (Niger & Benin) Company (WAPCO), a subsidiary of China National Petroleum Corp, which constructed the Niger-Benin pipeline.

—Read the article from S&P Global Commodity Insights

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Sustainability

New Zealand's ETS Settings Consultation Fails To Boost Carbon Market

New Zealand's consultation to update carbon auction price settings for its emissions trading scheme failed to provide certainty to the market, with the government's option to lower the auction floor denting market confidence and pushing prices down, sources said. The consultation released on May 15 was part of an annual review of the price and volume settings for the quarterly auctions of New Zealand Units, under which the government must consider the advice of its national climate body, Climate Change Commission.

—Read the article from S&P Global Commodity Insights

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Energy & Commodities

Kuwait's Upstream Sector Sees Room For Growth Amid Sweeping Political Changes

Kuwait's dissolution of parliament on May 10 and the suspension of a few constitutional articles will likely augur a new era of positive business sentiment particularly for the OPEC producer's stagnant upstream sector, analysts said. Kuwait's emir, Sheikh Meshal al-Ahmad al-Jaber al-Sabah, said he would suspend parliament and revoke certain articles in an emiri decree. Emad Mohammad al-Atiqi, a Kuwaiti academic credited with restoring Kuwait University after the Iraqi invasion in the early 1990s and helping mastermind key projects such as the 615,000 b/dal-Zour refinery will remain as oil minister under the new government.

—Read the article from S&P Global Commodity Insights

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Technology & Media

Listen: eRobot: Energy Sector Embraces AI In Race To Innovate And Transform

Artificial intelligence (AI) is most commonly associated with the Silicon Valley and tech-sector giants. However, the energy sector is actively investing in and pioneering its own applications of AI to projects and processes. Dan Bennett, S&P Global Commodity Insights' head of technology and data, and Judson Jacobs, CI's executive director of energy technology and innovation, join EnergyCents with hosts Hill Vaden and Sam Humphreys to discuss the opportunities to apply artificial intelligence to a transforming energy sector and identify the types of companies leading investment in the area.

—Read the article from S&P Global Commodity Insights

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