MARKET SNAP: At 6:15 a.m. ET, S&P 500 futures down 0.2%. 10-Year Treasury yield lower at 2.75%. Nymex down 1.35% at $93.67. Gold up 0.65% at $1355.3/oz. In Europe, FTSE 100 down 0.95%, DAX down 1.33% and CAC 40 down 1.33%. In Asia, Nikkei 225 down 2.59% and Hang Seng down 1.65%.
WATCH FOR: February Federal Budget (2:00 p.m. Eastern Time): seen -$198B; previously $203.5B a year ago. Express, Krispy Kreme, Men’s Wearhouse, Vail Resorts and Williams-Sonoma are among companies scheduled to report quarterly results.
THE BREAKFAST BRIEFING
After a brutal 2013, short sellers have found some success this year.
The 50 most-heavily shorted stocks in the S&P 500 have underperformed the broad stock index this year, according to data firm Markit, a positive sign for short sellers and a stark contrast from what transpired during last year’s record-breaking rally.
In short selling, an investor sells borrowed shares in hopes of buying them back later at a lower price and pocketing the difference. If the price goes up, the investor suffers a loss.
The 50 most-heavily shorted stocks dropped about 1% through Friday’s close, while the S&P 500 rose 1.6%, according to Markit, which tracks how much of a company’s stock is out on loan, and uses the loan numbers as a proxy for short interest. More than half of the 50 most-shorted names have seen their share prices drop this year, including iron-ore miner Cliffs Natural Resources Inc., which is down about 30%. GameStop Corp., another favorite of the shorts, has dropped 22%.
That compares to only 38% of S&P 500 companies that have declined thus far this year.
“The first few months of 2014 have brought hope to short sellers and short-focused funds,” Andrew Laird, an analyst at Markit, wrote to clients.
The trend represents a sharp reversal from 2013 when 458 stocks in the S&P 500 finished the year higher, the largest amount of positive performers since 2003, according to S&P Dow Jones Indices.
Short sellers faced their worst losses in at least a decade in 2013 amid big rallies in heavily shorted companies such as Tesla Motors Inc., Zillow Inc. and Green Mountain Coffee Roasters Inc.
But correlations are near their lowest levels since the financial crisis,and investors have been more discerning this year, a trend that Mr. Laird says could bode well for individual stock pickers and short sellers.
“2013 was an anomalous year with exuberant price advances which saw markets around the world reaching new highs,” Mr. Laird said. “The bull market has lasted more than five years and few professionals would argue that U.S. stocks are inexpensive. 2014 could look a lot different for short sellers.”
Morning MoneyBeat Daily Factoid: On this day five years ago, Bernie Madoff was sent to prison after admitting to one of the biggest financial frauds in history. He told a courtroom that he cheated and that he was “sorry and ashamed” for bilking so many people out of their life savings.
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