S&P 500: Investors Bet 10 Major Stocks Are Due For A Nasty Fall

If you’re like most S&P 500 investors, you’re celebrating your nearly 18% gain this year. But a group of doubters are betting it’s too good to last.

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Ten S&P 500 stocks — including consumer discretionary stocks Ralph Lauren (RL) and CarMax (KMX) and communications firm Paramount Global (PARA) — are the most shorted in the index as of July 15, says an analysis by S&P Global Market Intelligence.

The consumer discretionary sector is the most shorted in the S&P 500. Seeing so many big investors betting against the sector is noteworthy. Consumer discretionary stocks are the third best performing of the 11 S&P 500 sectors this year. High short activity indicates many investors think they can profit from a coming fall.

“Short sellers are largely holding tight to their bets against consumer discretionary stocks, wagering that persistently high inflation and interest rates will significantly hinder consumer demand,” says a report by Brian Scheid and Annie Sabater for S&P Global Market Intelligence.

S&P 500 Shorts Soar In Consumer Discretionary

The S&P 500 Consumer Discretionary Select Sector SPDR ETF (XLY) is up 30.6% just this year. That big gain naturally makes it a target for short sellers who profit from falling stock prices.

True, the Communications Services Select Sector SPDR (XLC) is the best S&P 500 sector this year, up 40.5%. And tech stocks are a close second with their 40% rise. But who’s crazy enough to short the “Magnificent Seven” stocks in those sectors that are dominating the market.

Consumer discretionary stocks, therefore, attract attention. Especially if a recession does materialize as bond investors still fear.

“Throughout all major U.S. stock exchanges, short interest in the consumer discretionary sector was 5.25%, the most shorted sector,” S&P Global said. “Consumer discretionary has been the most shorted U.S. stock sector for 18 months.”

Half of the 10 most-shorted S&P 500 stocks are in the consumer discretionary sector. And not all of their stocks are doing all that great. The 10 stocks, on average, are up 17.8%, lagging the S&P 500.

But short sellers are still finding juicy opportunities.

Looking At The Big S&P 500 Shorts

Feeling preppy? Short sellers aren’t. Nearly 15% of Ralph Lauren shares are controlled by the shorts. That’s the most shorted stock in the S&P 500.

It’s been a costly move, though. Shares of the high-end apparel maker are up nearly 25% this year so far. Analysts are expecting healthy profit growth of more than 12% this year. And the stock yields an additional 2.3%.

Short sellers’ bet against Paramount is another story. The restructuring media giant’s stock is languishing this year as it comes back from being a meme phenomenon in 2021. The stock is down roughly 8% this year. Analysts think the company’s profit will fall 63% in 2023 as it attempts to fix itself amid a writers’ and actors’ strike.

Short sellers aren’t always right. Many are losing their bets against meme stocks this year. But when big investors are so certain big S&P 500 stocks will fall, it’s worth paying attention.

Most Shorted S&P 500 Companies

Sources: S&P Global Market Intelligence, IBD