Short sellers resist covering as S&P 500 retakes record

The S&P 500 Index has climbed 7.9% since January

It usually doesn’t work this way: stocks vaulting to records, and bearish traders getting more aggressive. Lately, it has.

The S&P 500 Index has climbed 7.9 per cent since January, including its biggest gain since April in the just-completed week. At the same time, short interest as a proportion of total shares outstanding has also expanded, rising by 0.3 percentage point to 3.9 per cent. Never before has an equity advance as big as this year’s occurred simultaneously with more short sales, according to exchange data compiled by Bloomberg that goes back to 2008.

It’s not hard to see why bears are standing firm, when any mishap from President Donald Trump could wreak havoc in a market where valuations sit at levels not seen since the dot-com era. Just one week ago, stocks suffered their worst rout in eight months as concerns over Trump’s presidency surfaced. Yet the loss was quickly erased and the S&P 500 rose seven straight days to reach record highs.

The S&P 500 rose 1.4 per cent to 2,415.82 over the five days, finishing the week with the best gain in a month. The Dow Jones Industrial Average added 275.44 points, or 1.3 per cent, to 21,080.28. Technology shares continued to outperform as the Nasdaq 100 Index jumped 2.4 per cent.

The challenge for short sellers is how long they can stay solvent before being forced to buy back the shares that they have borrowed and sold. And the pressure to cover is building. A Goldman Sachs Group Inc basket of most-shorted stocks has jumped six per cent this quarter, almost triple the return in the S&P 500.

Bloomberg