Short sellers target consumer discretionary stocks, bet against home furnishers

Short sellers raised their bets against consumer discretionary stocks as inflation continues to soar.

The latest S&P Global Market Intelligence data shows that short interest in consumer discretionary stocks climbed to 5.28% in mid-April, up 73 basis points since the start of the year and the highest level of short interest in the sector since mid-January 2021. Short interest measures the percentage of outstanding shares held by short sellers.

Most-shorted sectors

Consumer discretionary stocks was the top-shorted sector of any in U.S. stocks markets so far this year. Short interest in the sector, which is made up of companies that manufacture goods or provide services that consumers want but do not necessarily need, was 109 bps above the healthcare sector, the second-most-shorted sector.

Short interest in the financials sector was at 1.08% as of mid-April, remaining the least-shorted sector as investors continue to see banks benefiting from the Federal Reserve's push to repeatedly raise rates over the next year.

Leveling off

While short interest has climbed in the consumer discretionary sector, it has leveled out in healthcare and declined from its recent peak in the energy sector, the next two most-shorted sectors.

Short interest in the healthcare sector was 4.19% in mid-April, up 5 bps from the end of March and down 106 bps from its most recent high of 5.25% as of May 2021.

Average short interest in the S&P 500 was at 2.14% as of mid-April, the same as it was at the end of March. Short interest in the S&P 500 has fallen off recently, down 40 bps from mid-October 2021.

Top subsectors

Home furnishing retail stocks were the most shorted of any of the consumer discretionary sector's subsectors. The subsector had 13.53% short interest as of mid-April.

Computer and electronics retail was the second-most-shorted sector with 12.48% short interest at the time. Conn's Inc. was that subsector's most-shorted stock with 26% short interest, while GameStop Corp. was the second-most-shorted of the subsector with 18.6%.

Furnishings hit hard

Short sellers seem to think that rising inflation will hit the home furnishing sector particularly hard.

Kirkland's Inc., with 19.65% short interest, was the subsector's most-shorted stock, followed by Bed Bath & Beyond Inc. and Sleep Number Corp.