Both can be true: Stock returns and short interest
Both can be true: Stock returns and short interest
It feels like the dichotomy of life has kicked up a notch. Scrolling on social media can easily lure you into a panic on world events, then fill you with laughter from a comedy bit or emotional hope from those helping people in need. Social media is bad and good—both can be true.
Our markets are the same. Despite a -19% peak to trough drop from mid-February to April 8, the S&P 500 is up about 12% this year. Looking through the largest 1,000 stocks, reveals a market that has had more breadth than it’s gotten credit for over the last several years.
Another dichotomy is the distance between the best and the worst stocks, out of the largest 1,000, this year with the difference in return being 393%. But even more interesting is looking at this along with outstanding short interest. For context, the average outstanding short interest across all stocks is 4%.
The worst 10 stocks YTD have an average return of -60%, while the average short interest is 9%.
The best 10 stocks YTD have an average return of 160%, while the average short interest is 6%.
This means there are some stocks that have not only lost more than half their value, but are also already well-shorted. Subject to the prospects of their business, they could be ripe for a short squeeze.
The secular themes are clear here. Weaker jobs, healthcare in question, lower alcohol intake, tariffs. If you only looked at this, you’d say the market expects the consumer to not be doing well. Yet, it hasn’t come out in much of the economic data except in much less new jobs.
Equally, there are some stocks that have done very well, even with some short interest. Subject to their fundamentals, it could be a red flag that perhaps some of these stocks are getting to full value.
The theme here: the need for natural resources and demand for gold.
Markets are at all-time highs. They’re excited about the so-called “run it hot rally”, where both tax and monetary policy provide stimulus in 2026, helping to fuel further gains for equities. But, I have to say, this feels like a win/lose. It might be good right now—but it’s unclear if that ends well in a year or two out.
In the meantime, there are plenty of opportunities to find below the surface. You just have to know where to look.