Short sellers through mid-March increased their bets on a significant decline in U.S. stock markets.

The latest data from S&P Global Market Intelligence shows that short sellers have increased their positions against all sectors of the stock market. The largest short interest has been in consumer discretionary, healthcare and energy stocks as global oil prices remain elevated, inflation has surged by the highest level in 40 years and fears of another COVID-19 variant remain.

Shorts across sectors

Short sellers, who bet on a stock's decline by selling borrowed shares in hopes of buying them later at a lower price, have steadily increased their bets against all sectors since the start of 2022, when equities surged to all-time highs. Since the S&P 500 hit a record high on Jan. 3, it settled down 13% on March 14. The large-cap index is up 11% on March 29 from that low, still 3.4% below its all-time high.

From mid-December 2021 to mid-March 2022, short interest in the S&P 500 has increased by an average of 11 basis points, from 2.09% to 2.2%. Short bets grew by relatively large amounts in every U.S. stock market sector, except financials.

Short interest in consumer discretionary and energy stocks surged by 74 bps and 72 bps, respectively, over the three-month period. Short interest in the financials sector grew by just 9 bps, the smallest increase of any sector.

Most-shorted sectors

Consumer discretionary remained the most-shorted sector in mid-March, largely due to the impact of rising inflation on demand for nonessential goods.

Financials were the least shorted sector, likely due to bets that the banking sector will benefit from multiple rate hikes from the Federal Reserve this year and next.

Short surge

Short selling in U.S. markets has rebounded following a fall in 2021.

Short interest in the consumer discretionary sector climbed to 5.24% in mid-March, the highest level since mid-January 2021.

Short interest in the energy sector, which has taken off on bets that historically high oil prices were unlikely to last, climbed to 3.91% in mid-March, its highest level since mid-October 2020.

Top stocks

Four of the most-shorted U.S. stocks as of mid-March were consumer discretionary stocks — Big 5 Sporting Goods Corp., Citi Trends Inc., Camping World Holdings Inc. and Arcimoto Inc., according to Market Intelligence data. Big 5 was the most-shorted stock, with 39.43% short interest.