Bets against consumer discretionary stocks have plummeted since a peak in mid-September, an indication that investors believe the worst impacts of soaring inflation have passed.

As of mid-December, short interest in consumer discretionary stocks was at 5.13%, down 91 basis points from its peak three months earlier, according to the latest S&P Global Market Intelligence data.

From its most recent low on Oct. 26 to Dec. 15, the S&P 500's consumer discretionary sector increased nearly 21.8%, compared to the broader S&P 500, which climbed just over 14%.

Consumer discretionary stocks have been the most shorted sector since early 2022, as sellers have bet that skyrocketing inflation would hinder consumer demand. Annual growth in the consumer price index, the market's preferred inflation measure, peaked at just under 9% in June 2022, fell to 3.7% in September 2023 and dropped to 3.1% in November 2023, according to the latest government data.

Consumer discretionary remains the most shorted stock sector, followed by healthcare, which had 4.63% short in interest as of mid-December, down 107 basis points from mid-September. Short interest in energy stocks, the third most shorted sector, increased 15 basis points from mid-September to nearly 3.7% as of mid-December.

Sector deep-dive

Home furnishing retail was the most shorted industry within the consumer discretionary sector with just over 11% short interest as of mid-December, down from nearly 13.6% a year earlier.

Computer and electronics retail was the second most shorted industry within the sector with just under 8.1% short interest as of mid-December, down 69 basis points from a year earlier.

Fisker Inc. was the most shorted consumer discretionary stock as of mid-December with short interest of about 41.3%, up from nearly 31.3% from a year earlier.

Most shorted overall

Fisker was also the second most shorted stock overall as of mid-December, with 41.3% short interest.

Aditxt Inc. was the most shorted stock as of mid-December, with 45.7% short interest, up from less than 1% a month earlier. Aditxt, a biotechnology company, announced Jan. 2 that it had regained compliance with Nasdaq's minimum stockholders' equity requirement.