Short sellers are backing away from consumer staple stocks and keeping bets against consumer discretionary near their 2022 highs, a sign that investors are turning to defensive stocks as interest rates rise and the odds of a recession remain elevated.

At the end of March, short interest in the consumer staples sector was at 3.4%, well below the average of 5.6% throughout 2022, according to the latest S&P Global Market Intelligence data. Short interest in consumer staples peaked at 7.7% at the end of May 2022. Short interest in consumer discretionary stocks, the most shorted group as US inflation has remained persistently high, was at 5.8% at the end of March, near its 6% average in 2022.

Sellers appear to be betting that consumer discretionary stocks, which tend to fare better amid a strong economy, will struggle as high inflation drags on and the Federal Reserve plans to keep its benchmark rate near 5%. The S&P 500 consumer discretionary index has fallen about 30.9% as of April 14 since the broader index peaked in January 2022, while S&P 500 consumer staples stocks have fallen 2.4%. The S&P 500 is down 13.7% over the same period.

Short interest, which measures the percentage of outstanding shares held by short sellers, is generally on the rise on major US stock exchanges, the data shows. Short interest in every sector, except utilities and communication services, rose from the end of February to the end of March.

Consumer staples breakdown

Short interest in consumer staples, or companies which tend to see demand remain steady no matter what is happening with the economy, rose to 3.4% at the end of March from just under 3.3% at the end of February.

Drug retail was the most shorted subsector within consumer staples, with 9.6% short interest at the end of March. The food retail subsector followed with short interest of 4.4%, and packaged foods and meats, at 3.7%.

Beyond Meat Inc. was the most shorted stock within consumer staples, at 30.8%, while Rite Aid Corp. was the second-most shorted stock, at 24.2%.

Most shorted stock overall

Silvergate Capital Corp. was the most shorted stock across all sectors, at 46.4%, down from its recent peak of 66.8% at the end of February.

Bed Bath & Beyond Inc., which was the most shorted stock on major US exchanges earlier in 2023, saw its short interest fall to 19.1% at the end of March from 70.7% at the end of February. It was the first time short interest in the stock was below 20% since mid-April 2022.