SUPERNEWS

Macro

SunPower Leads in Short Bets Amid 48% Drop, Market Wary

Inflation report triggers market sell-off, with investors increasing short bets, especially in tech and renewable energy sectors.

By Barry Stearns

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4/12, 06:23 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
Bank of America Corporation
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Key Takeaway

  • Investors increase bets against stocks like SunPower and B. Riley Financial amid market volatility and inflation concerns.
  • SunPower leads with nearly 77% short interest due to disappointing earnings and rate sensitivity; stock down 48% in 2024.
  • High short interest in sectors sensitive to interest rates, reflecting skepticism over the Fed easing off rate hikes soon.

Inflation Concerns Trigger Market Volatility

The latest inflation report for March, showing a 3.5% rise year-over-year, exceeded expectations and signaled that inflation remains persistent, challenging the Federal Reserve's efforts to control price increases. This report led to a sell-off in stocks and a spike in Treasury yields, indicating investor concerns that the Fed may not ease interest rates soon. Bank of America and BMO Capital Markets have revised their forecasts, now expecting only one rate cut in 2024, a significant shift from earlier predictions. This adjustment reflects growing skepticism about the Fed's ability to combat inflation without maintaining a tighter monetary policy stance.

Short Interest Surges in Specific Sectors

Amidst the broader market's volatility, certain stocks have seen a notable increase in short interest, indicating hedge funds and investors are betting against them. Companies in sectors sensitive to interest rates, such as renewable energy providers like SunPower, have been particularly targeted. SunPower, for example, has seen its shares plummet by 48% through the year, with short interest nearing 77% of its float. Other sectors, including finance and healthcare, also feature companies like B. Riley Financial and ImmunityBio with high short interest, suggesting a broader skepticism towards these industries amidst current economic conditions.

Market Reaction to Inflation and Short Selling

The reaction to the inflation report and the increase in short selling activity reflect a market on edge. With the S&P 500 experiencing its most record closing highs since 2017, the surge in short selling, especially in tech, telecom, and media stocks, indicates a strategic bet by hedge funds against the continued rally. Goldman Sachs notes that this is the largest notional short selling observed in six months, with a significant focus on US TMT stocks. This shift in strategy underscores the market's sensitivity to inflation dynamics and the Fed's policy path, with technology valuations particularly vulnerable to a "higher-for-longer" rates environment.