Short sellers cut consumer discretionary bets, target utilities, energy in 2023

Short sellers bet against consumer discretionary stocks more than any other sector in 2023, though overall short interest in the sector declined over the course of the year while bets against utilities and energy stocks climbed.

Short interest in consumer discretionary stocks was 5.27% at the close of 2023 as investors continued to see stubbornly high inflation and higher interest rates dampening consumer demand. But as inflation decelerated from its highest levels since the early 1980s and started showing signs of moderation, short interest in the sector began to decline, according to S&P Global Market Intelligence data.

By the end of 2023, short interest in consumer discretionary stocks was down about 30 basis points from where it was at the end of 2022 and was down 76 basis points from its recent peak in mid-September 2023. Meanwhile, short interest in utilities stocks climbed to 2.76% at the end of 2023, up 39 bps from the end of 2022, the highest rise of any single sector over that time frame. Energy companies, meanwhile, registered an increase of 26 bps in average short interest over the year.

Utilities in focus

Short interest across industries in the utilities sector broadly rose over 2023. Independent power producers and energy traders recorded the sharpest rise, with short interest at the end of 2023 more than 80 bps higher than the end of 2022.

Water utilities, however, recorded lower average short interest at the end of 2023 than a year earlier, with a drop of 13 bps.

Renewable electricity companies continued to carry the highest short interest among utilities industries, rising 31 bps over the course of 2023.

Energy sector deep dive

Oil and gas drilling stocks were the most-shorted energy stocks in 2023, with short interest of 7.89%, up from 5.95% at year-end 2022.

Oil and gas refining and marketing stocks were the second-most shorted at 5.68%, down from 6.01% at the end of 2022.

Four of the 10 most-shorted energy stocks at the end of December 2023 were oil and gas exploration and production companies: Callon Petroleum Co., CNX Resources Corp., Vital Energy, Inc. and Tellurian Inc.

Two of the 10 most-shorted stocks were oil and gas refining and market companies: Vertex Energy Inc. and Gevo Inc. Another two were oil and gas drilling companies: Transocean Ltd. and Nabors Industries Ltd. Core Laboratories Inc., which also made the top 10, is an oil and gas equipment and services company.

Most shorted S&P 500 companies

Tractor Supply Co. was the most shorted stock in the S&P 500 at the end of 2023, with 12.06% short interest. It was followed closely by Albemarle Corp. at 12.04% short interest.

Seven of the 10 most-shorted stocks in the S&P 500 were consumer discretionary stocks: Tractor Supply, CarMax Inc., Etsy Inc., Ralph Lauren Corp., Pool Corp., Whirlpool Corp. and Norwegian Cruise Line Holdings Ltd.