Short sales in the S&P Composite 1,500 Index fell to 5.6% of shares available for trading in February, down from a record 12% during the credit crisis and the lowest ever in data compiled by Bespoke Investment Group and Bloomberg starting six years ago. The last time the number of shares borrowed and sold short approached this level, the equity gauge lost 3.3% in the next three months.
Bulls say the capitulation by market bears shows the rally remains intact and that more money will flow into stocks after individuals sent $37.9 billion to mutual funds in January, the most since 2004. It also means a source of demand is diminishing, a traditional signal for caution in an aging bull market. Less than 1% of the shares of Ford Motor Co. and Cabot Oil & Gas Corp. have been borrowed and sold short by speculators hoping to return them to owners once prices fall.
Billionaire investor Warren Buffett said stocks will do well and the greater risk is to sit out the market’s rally.
“American business will do fine over time. And stocks will do well just as certainly,” Buffett said in his annual letter to shareholders. “Since the basic game is so favorable, Charlie and I believe it’s a terrible mistake to try to dance in and out of it based upon the turn of tarot cards, the predictions of ’experts,’ or the ebb and flow of business activity. The risks of being out of the game are huge compared to the risks of being in it,” he said, referring to Berkshire Hathaway Vice Chairman Charles Munger.
The S&P 500 Financials Index climbed and the consumer- discretionary gauge rose to a record to lead gains among the 10 main groups in the S&P 500 today. Home Depot Inc. and Citigroup Inc. paced the advance.
Delta Air Lines Inc. rose to a five-year high, pacing a rally in airlines, after increasing the lower end of its guidance for unit revenue. This will be Delta’s best first quarter in over 12 years, President Ed Bastian said today on a webcast of a presentation at a JPMorgan Chase & Co. transportation conference in New York. The NYSE Arca Airline Index rallied as lower oil prices also boosted the group.
Hess Corp. jumped after saying it will exit energy trading, marketing and retail businesses while doubling its dividend and announcing plans to buy back as much as $4 billion in stock. Yahoo! Inc. climbed after an analyst at Barclays Plc raised his rating on the company to overweight from equalweight.
Treasury 10-year yields added three basis points to 1.87%.
The Stoxx Europe 600 Index closed little changed after losing as much as 0.6% earlier. Commodity producers posted the biggest decline among 19 industry groups in the benchmark index, sliding 2.1%.
HSBC Holdings Plc retreated 2.5% as Europe’s largest bank said profit fell 5.6% in 2012 after taking a $5.2 billion charge for revaluing its own debt. Debenhams Plc plunged 15%, the most since 2008 on a closing basis, after predicting that pretax profit will drop in the first half of the year because of snow in January.