SHORT INTEREST: Securities Finance Reacts to the U.S. Election
Donald Trump has won the 2024 presidential election, and the financial markets have reacted in turn. With policy changes coming once the new administration begins, investors are betting for and against certain industries likely to be impacted. The securities finance industry, which largely tracks short interest and market sentiment, has started to see the implications of these changes.
In the week leading up to the election, shares of Trump Media & Technology Group (Ticker: DJT US) spiked and reached prices over $50 a share, potentially putting in place all the ingredients for a short squeeze. However, since that high, DJT’s stock price has experienced volatility ranging between $26 and $45 a share. While EquiLend Orbisa saw a slight reduction in borrow shares, indicating some traders may have closed out their short positions, borrow demand ticked back up and borrowing costs soared to over 4,000 bps after the election. With high costs to maintain short positions, investors may be feeling the pressure to close out as they await what comes next for DJT; there is speculation that a merger between Truth Social and X (formerly Twitter) may be on the horizon.
Banks and Financials Rallying
With the assumption of decreased regulations, many banks and financial institutions saw double-digit gains last week. As companies like Wells Fargo (WFC US), Goldman Sachs (GS US) and Morgan Stanley (MS US) all saw double-digit gains, EquiLend Orbisa saw borrow balances in the sector increase by 8%, going from $91 billion to over $99 billion. However, overall short interest appears to remain flat in the financial sector as borrow demand (utilization) remained relatively flat at around 3%.
Clean Energy Companies Take a Hit
Many investors have been betting that a Trump victory would lead to the repeal of many of the tax credits and incentives introduced by the Biden administration via the Inflation Reduction Act. Only a few days removed from the election, many of those investors have been rewarded. Shares of First Solar (FSLR US) have dropped more than 10% since the election, rewarding short sellers who have been piling into their positions. While the last reported short position for FSLR on October 15 was at 4.99 million shares, EquiLend Orbisa reported borrowed shares have increased every day since then, suggesting short interest in the name may be closer to 6.15 million shares. Sunnova Energy International (NOVA US) was another loser last week as the stock price dropped by more than 50% since the election. Prior to the election, it appeared as if short interest was declining in the company as borrowed shares dropped by roughly 33%, however following the election, shares spiked from 20 million to over 31 million in just two days.
Indexes Rise, Russell 2000 Shines
The three major indexes in the U.S. (S&P 500, DJIA, NASDAQ 100) experienced significant gains in the days after the election. The biggest winner was the Russell 2000, which rose 9% over the last week. Having lagged the major indexes for most of the year, the Russell 2000 popped on signs of a stronger U.S. dollar in the coming years. In turn, shares of IWM US, the iShares Russell 200 ETF, jumped by a similar margin, and borrow demand in securities lending has also dropped. Borrow demand (aka utilization) decreased from 86% to 74%, while shares borrowed in the broker-to-broker market, which is sometimes viewed as a leading indicator of market sentiment, dropped from 18.6 million to 12.99 million.
Yields Rise, Treasurys Shine in Securities Lending
Bond yields rose since the election over fears that tax cuts and wide-sweeping tariffs will lead to inflation and reduce the number of rate cuts many projected the U.S. Federal Reserve to make in the coming months. As such, the securities lending market continued heavy borrowing of U.S. 10-year note and 20-year treasury bond. In October, the U.S. 20-year treasury bond (US912810UD80) was the highest-earning security in the entire securities finance market, according to EquiLend, and borrow demand has ticked back up since November 1 from 5.6 billion bonds borrowed to 7.3 billion. Similarly, the previous 10-year note (US91282CLF67) has seen an increase in demand going from 10.5 billion bonds borrowed on October 31 to 14.6 billion on November 7.
With a full week to adjust to the results of the election, it will be interesting to see which markets and sectors continue to see the effects of the new administration. Stay tuned for more updates from EquiLend Orbisa and for all your insights into short selling.
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Originally Posted November 12, 2024 – Securities Finance short interest data provider Orbisa offers analysis as markets react to the U.S. Election
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