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Short sellers ease off consumer discretionary stocks in sign of peak inflation

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According to Market Intelligence, December 2022

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Short sellers ease off consumer discretionary stocks in sign of peak inflation

Short sellers are backing away from consumer discretionary stocks after growing their bets against the sector earlier this year, an indication that at least some in the market believe surging inflation has peaked.

As of mid-August, short interest in consumer discretionary stocks traded on major U.S. exchanges was at 5.10%, down 52 basis points from the end of June and the lowest short interest in the sector since mid-February, according to the latest data from S&P Global Market Intelligence.

Short interest measures the percentage of outstanding shares held by short sellers, who make money when a stock declines by selling borrowed shares and buying them later at a lower price.

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Consumer discretionary remains on top

Consumer discretionary stocks remained the most-shorted sector on major U.S. stock exchanges as sellers still believe that inflation, rising at its highest levels since the early 1980s, will continue to weigh on consumer demand.

The average short interest for S&P 500 stocks was 2.22% as of mid-August, down from 2.31% in mid-July.

Short interest in financial stocks remained the least-shorted of any sector, at 1.25%, as sellers continued to bet that rate hikes from the Federal Reserve will benefit banks.

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Within the consumer discretionary sector, homefurnishing retail was the most-shorted industry with 13.89% short interest, followed by department stores with 10.3% and automotive retail with 9.4%.

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Bed Bath & Beyond Inc., a homefurnishing retail company, was the most-shorted consumer discretionary stock with 38.61% short interest as of mid-August, followed by discount retailer Big Lots Inc., with 33.98%, and electric vehicle charging company EVgo Inc., with 33.31%.

Short interest in Bed Bath & Beyond has risen steadily this year, from 28.46% at the end of December.

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Bed Bath & Beyond, EVgo and Big Lots were three of the most shorted stocks as of mid-August. Intercept Pharmaceuticals Inc., with short interest of 38.79%, was the most-shorted stock among all sectors as of mid-August.