Short Sellers Pare Bearish Bets After S&P 500 Surges (Update1) By Matt Townsend May 28 (Bloomberg) -- The steepest rally in seven decades is convincing more short sellers they were wrong about the U.S. stock market. Shares of Standard & Poor’s 500 Index companies borrowed and sold short fell 1.7 percent to 9.87 billion between April 30 and May 15, the lowest level since Feb. 27, according to exchange data compiled by Bloomberg. Short interest declined the most in technology companies. Traders reduced bets against Microsoft Corp., the biggest software maker, and Cisco Systems Inc., the largest supplier of networking equipment, by more than 25 percent, the data show. Investors turned less bearish as the S&P 500 surged 37 percent between March 9 and May 8. U.S. stock exchanges release data on short selling, or the sale of borrowed stock with the hope of buying it back at a lower price, every two weeks. Yesterday’s report was the third in a row that showed a decrease in wagers that stocks would decline. “The perceived risks in the industry have diminished considerably,” said Bill Frels, the St. Paul, Minnesota-based chief executive officer of Mairs & Power Inc., which manages about $3.5 billion. “Stocks have all acted a lot better.” Short Slump Short interest for the S&P 500 slumped to 5 percent of shares available for trading, also known as “float.” It’s down from 5.6 percent in March and 5.9 percent in July. The index has gained 0.7 percent this week. Futures on the S&P 500 added 0.2 percent as of 5:39 a.m. in London. The number of shares sold short for technology companies in the S&P 500 fell to 1.49 billion shares as of May 15, when the group’s gain since March 9 was 31 percent. Financial institutions in the index experienced a 3.2 percent decrease in short interest to 3.37 billion shares. Principal Financial Group Inc. led the decline with a 40 percent drop in bearish bets. Since the S&P 500 sank to the lowest level in 12 years on March 9, the industry has rallied 86 percent. Short interest in New York-based cosmetics maker Estee Lauder Cos. fell 42 percent, the most in the S&P 500 between the end of April and May 15. Traders boosted short sales on railroad operator CSX Corp., based in Jacksonville, Florida, to 5.6 percent of float from 1.48 percent. Total shares shorted almost quadrupled to 21.6 million. Citigroup Inc., the New York-based bank that has plunged 83 percent in the past year, is the most-shorted company in the S&P 500. Its short interest of 1.28 billion shares is almost four times greater than the amount for American International Group Inc., the New York-based insurer that the U.S. government bailed out in September. Twenty-five percent of Citigroup’s float is shorted. To contact the reporter on this story: Matt Townsend in New York atmtownsend9@bloomberg.net.
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