COVID-19 Delta fears has unleashed the short sellers on the economically sensitive consumer discretionary sector.
Short sellers held 4.57% of outstanding shares in the S&P 500 consumer discretionary sector at the end of July, according to new data from S&P Global Market Intelligence. Taking a short position in a stock is one's way of betting on a decline in price.
The percentage of short sellers in the consumer discretionary space has trended higher since April as stimulus check spending has run its course and the Delta variant begins to pressure economic activity. Major investment banks such as Goldman Sachs and Bank of America have slashed their GDP forecasts in recent days amid the macroeconomic weakness, citing mostly the impact of the Delta variant. For instance as the Morning Brief newsletter points out, Pantheon Macroeconomics Chief Economist Ian Shepherdson just took his forecast for third quarter GDP growth down to 7%, from 10%, citing a more cautious view on consumer spending.
So far in August, the consumer discretionary sector has been among the worst performers of the S&P 500 — standing in stark contrast to strength in the more defensive health care arena.
The short-sellers look to be making a wise move given the fresh round of concerning commentary.
"There is no hiding it. The spread of the Delta variant has got consumer confidence lower," Norwegian Cruise Line CEO Frank Del Rio told Yahoo Finance Live.
Del Rio acknowledged booking trends have softened a bit lately as consumers remain cautious.
"There are some signs of dampening from the Delta variant. The slowdown may be driven by a mix of Delta, seasonality, and difficult comps," pointed out the team at The Transcript, which analyzes commentary from executives on earnings calls. "Overall the economy still seems to be in great shape though. Back-to-school shopping has also gotten off to a strong start. Some of the hottest sectors, like housing, are moving from overheated to a more normalized basis. There’s not much sense of alarm."
Short-sellers would say otherwise right now.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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