Short interest in the S&P 500’s best-performing sector rises to its highest level since 2020!
Short interest in U.S. energy stocks has risen to 3.9%, the highest level since October 2020, according to S&P Global Market Intelligence.
Tweet on Energy stocks valuation amid recent crisis
Traders bets against energy stocks!
While energy stocks outperformed any other sector in the S&P 500 this year, thanks to oil prices surging after the war in Ukraine.
— The_Journalbiz (@the_journalbiz) October 21, 2022
Statista: energy stocks over 50% gains thus far in S&P 500
That means that 3.9% of energy shares available for trading are being held by short sellers.
Such traders profit off a stock’s decline by borrowing shares from a brokerage for a fee, selling the stock and then buying the stock and returning it to the brokerage to close out the position. Within the energy sector, traders are the most short on drillers and companies refining and marketing oil and gas and the least short on transportation and storage companies.
The simplest explanation of traders’ growing pessimism regarding energy shares is a belief that a group of stocks is generally due for a pullback after a big rally.
Energy stocks have performed better than any other sector in the S&P 500 this year, thanks to oil prices surging after Russia’s invasion of Ukraine. Even after giving up some of its gains, the S&P 500 energy sector is up 53% this year, compared with the S&P 500, which has fallen 22%. It remains the only sector in positive territory for the year—a stark reversal after years of underperformance. Some traders believe that kind of dominance can’t last.
Despite a dimming economic outlook, many on Wall Street still believe that energy stocks have more room to run.
*Goldman Sachs is recommending that investors keep a larger-than-average position in energy stocks in their portfolios.