The S&P 500’s advance over the past week has squeezed managers who borrowed and sold shares to bet on declines lawmakers would struggle to reach a deal. U.S. companies with the most short sales have climbed 4.7% since Oct. 9, compared with a 3.9% advance for the benchmark gauge, data compiled by Bloomberg and Goldman Sachs Group Inc. show.
Hedge funds, whose bearish bets on stocks have held their returns to half the Standard & Poor’s 500 Index in 2013, helped send a gauge of manager bullishness compiled by ISI Group LLC within 0.2 point of its lowest reading in 2013 last week.
Equities have surged in 2013 as the Federal Reserve maintained efforts to stimulate the economy by holding interest rates near zero% and purchasing $85 billion of bonds each month under a program known as quantitative easing.
The rally in 2013 has been the broadest in at least 23 years, with S&P 500 companies extending the streak of quarters in which they have avoided an earnings contraction to 15 and valuations holding below historic averages. Of S&P 500 members, 443 are up so far in 2013, data compiled by Bloomberg show. The next-closest year was 1997, when 436 companies had advanced and the index was quadrupling.
Profits for companies in the index probably increased 1.4% during the third quarter while sales rose 2%, according to analysts’ estimates compiled by Bloomberg. Some 22 companies in the S&P 500 are due to post results today.
U.S. economic growth remained “modest to moderate” as consumer spending maintained gains and business investment grew, the Fed said today in its latest Beige Book business survey. Four of the 12 Fed districts reported slower economic growth while eight others said the expansion held steady amid “uncertainty” stemming from the U.S. fiscal deadlock.
The report provides policy makers anecdotal accounts from the Fed districts two weeks before they meet to set monetary policy.