Vaccine optimism drove down short interest in all sectors of the S&P 500 in the first half of November as investors recalibrated their outlooks amid a series of positive vaccine developments and stocks soared to all-time highs.
Short interest in the S&P 500 amounted to 3.42% of shares outstanding as of Nov. 13, according to the most recent available data from S&P Global Market Intelligence, down from 3.95% in mid-March, when the pandemic began to take hold in the U.S. and the index began to crater.
The S&P 500 climbed 11.3% between the end of October and its new record Nov. 27, largely on positive news from coronavirus vaccine trials and the increasing likelihood of a smooth transition to the Biden administration.
As the market rallied, fewer investors used shorts to bet on a fall, the data shows.
Matt Weller, global head of research at GAIN Capital, said the combination of November's U.S. presidential election, which went as polls and analysts expected, and the surprising announcements of better-than-expected vaccine trials caused a month that was "brutal for shorts of all stripes."
Short interest has tumbled in all 11 sectors, including consumer discretionary, which has the highest percentage of short interest. Consumer discretionary short interest fell from 6.82% in mid-March to 5.71% in mid-November.
Real estate, which has the smallest percentage of short interest, saw a fall from 2.75% in mid-March to 1.85% in mid-November.
Since Pfizer Inc. and BioNTech SE announced Nov. 9 that interim data showed their vaccine to be more than 90% effective at preventing infection with the virus, the S&P 500 consumer discretionary sector has increased 3.6%. The sector has skyrocketed nearly 80% since its March 23 trough.
Wall Street may have taken an overly pessimistic view on the U.S. consumer sector, said Ed Moya, a senior market analyst with OANDA. Moya said that with the declining percentage of short interest in mid-November and a surge in online spending in the U.S., traders are quickly abandoning the short trade in consumer discretionary stocks. Consumers spent an estimated $9 billion online the day after Thanksgiving this year, a nearly 22% jump from the same day in 2019, according to data from Adobe Analytics.
Weller said consumer discretionary stocks likely had the most to gain in the first half of 2021 from a successful vaccine and reopened economy.
Paul Schatz, president of Heritage Capital, said shorts had gotten "super comfortable" without a vaccine, limiting investors' outlooks for life to return to normal.
But better-than-expected vaccine trial results and the likelihood that at least six vaccines will ultimately be developed have been a boon, especially for consumer discretionary stocks.
In addition to Pfizer Inc. and BioNTech SE, Moderna Inc., AstraZeneca PLC, GlaxoSmithKline PLC, Sanofi, Merck & Co. Inc. and Johnson & Johnson all have vaccines in various stages of development.
"With a vaccine, cruises, airlines and hotels become investable again," Schatz said. "Retailers may survive."