In the table below, we show the 20 stocks in the Russell 3000 that currently have the highest short interest as a percentage of float.  It should come as no surprise that GameStop (GME) still tops that list with 122.97% of float short as of the most recent data for mid-month. That is even after a 21.36 percentage point drop from the end of 2020 when 144.34% of shares were short. It was also the most heavily shorted stock then.  The runner-up is Dillard’s (DDS) which currently has 83.04% of shares sold short compared to over 90% at the end of 2020.  Again, despite that sizeable decline in the percentage of shares sold short, it was also the second most heavily shorted stock one month ago. Of the rest of the top 20, there are six other names with lower short interest than the end of last year.  Looking across the rest of the most heavily shorted stocks, Sumo Logic (SUMO), American Well Corp (AMWL), and Sunpower (SPWR) are the stocks that have seen their short interest as a percentage of equity float rise the most.  In terms of stock price performance, SPWR has been the one with the biggest rally having doubled YTD.  The only other stock that has doubled YTD in this cohort has been GME.

In the table below, we show the stocks that have seen the biggest changes in the percent of shares sold short between the end of 2020 and the most recent data as of January 15th. Those currently in the top 20 most shorted stocks are highlighted in gray. Across the entire Russell 3,000, 1,777 stocks have seen their short interest as a percent of short move lower in the two week period from the end of December to mid-January.  As shown, even after the massive short squeeze that has taken place, GME is actually not the stock that has seen the biggest decline in shorts.  Relay Therapeutics (RLAY) holds that title with a 22.62 percentage point decline.  That is even though the stock has experienced a relatively smaller move than some of its peers. Granted, a number of other stocks like nCino (NCNO) and Berkeley Lights (BPYU) to name a few have actually moved lower so far in 2020 and have also seen their short interest decline significantly. On the other end of the spectrum, WW International (WW) has seen its short interest rise the most. Click here to view Bespoke’s premium membership options for our best research available.

US funding markets are awash with liquidity thanks to ongoing QE purchases by the Fed and the progression of fiscal policy since the end of the year, as well as normal seasonal tailwinds that see more liquidity after year-end balance sheet constraints would roll off. Funding markets refer to collateralized, short-term lending via repo and related wholesale cash transactions.

Government money market funds that are allowed to conduct repo operations as well as buying Treasury and Agency debt are seeing roughly typical inflows, but those come on top of record share of overall money market funds. As a result, repo rates have been plunging. The secured overnight financing rate, which tracks the volume-weighted general collateral repo rate has fallen to 3 basis points above the bottom of the Fed Funds target range. While repo rates falling below the Fed Funds target range wouldn’t be a catastrophe and some parts of the market have gotten there, it’s not in the FOMC’s interest to have funding rates trading far outside its target policy rate range on a regular basis.

The solution already exists, of course: the NY Fed has a standing overnight reverse repo facility first introduced back in 2013 which is likely to start draining cash as investors seek higher returns than the repo markets offer. Reserve scarcity, which roll-off brought to bear in 2018 and 2019, is now reserve plenty, and so many reserves exist that the NY Fed will start draining them with reverse repos. Reserve balances will continue to grow this year thanks to QE purchases and an expected decline in the balance of the federal government’s transaction account at the Federal Reserve. Like what you see? Click here for a free trial to any of Bespoke’s premium membership options, including our Fixed Income Weekly note that features market analysis of this kind.

Similar to the Philly Fed’s index and Markit’s preliminary reading on the manufacturing sector, the Kansas City Fed’s manufacturing index exceeded expectations with a strong reading in January.   The index was expected to decline to 13 from last month’s reading of 14.  Instead, the index rose to 17 which is a new high for the pandemic period and is also the highest level since July of 2018.  Similarly, the index for expectations was considerably higher as it now sits at the highest level since September of 2018.  These readings are consistent with further acceleration in the growth of the region’s manufacturing economy.

Breadth across the report’s components was very strong with all but two (Backlog of Orders and Materials Inventories) higher month over month.  Only the index for Finished Good Inventories is in contraction, but even this index saw a move higher that stood in the top 94% of all monthly changes.  Additionally, a number of components are in the top decile of their historical ranges.  The indices for future expectations, on the other hand, were not quite as strong, but those also generally point to an optimistic outlook.

Demand appears to be healthy as the indices for New Orders, Backlog of Orders, Shipments, and Production all came in at the top 10% of historical readings.  While New Orders and Production sit just below their highs from October, Shipments and Backlog of Orders are at the highest levels since November of 2018.  As for expectations, each of these indices with the exception of Backlog of Orders reached the highest levels since 2018 as well.

Just as we have seen in various other readings on the manufacturing sector recently, prices continue to rise for both inputs and final goods.  The reading on Prices Paid for Raw Materials rose to a new high of 65.  That is a level that has not been seen since April of 2011. As for prices passed onto customers, the index for Prices Received for Finished Products did not see as dramatic of a move higher.  With an increase of 10 points (to 19) in January, it is at the highest level in two years. Click here to view Bespoke’s premium membership options for our best research available.

Outside of the outrageous moves of heavily shorted names, breadth in recent days has actually been on the weak side.  As a result of weakening breadth coupled with people questioning the likelihood of a bubble given the oddity of those shorted stocks’ moves, investors appear to have turned a bit more cautious.  AAII’s reading on bullish sentiment dropped 4.8 percentage points from 42.5% down to 37.7%. That is the first sub-40 reading since the first week of November and is the lowest reading since the last week of October. The week over week decline was also the largest since the 11.49 percentage point decile coming off the recent peak in mid-November.

The losses in bullish sentiment were met with a 3.8 percentage point increase in bearish sentiment.  That brings bearish sentiment to the highest level since the week of October 8th.  Additionally, this was a fourth consecutive week that bearish sentiment has risen; the longest such streak since four weeks of increases during the bear market from the weeks of February 20th through March 12th.

Sentiment has been increasingly less in favor of the bullish camp over the past few weeks, but this week marked the first time since the week of October 15th that bullish sentiment was outweighed by bearish sentiment.

Not all of the losses to bullish sentiment went to bears though.  Neutral sentiment was likewise higher with 24% of respondents reporting as such.  While higher, that is still below where the reading has stood for most of the past year.   Click here to view Bespoke’s premium membership options for our best research available.