Short sellers targeting consumer discretionary sector

Delta variant could spell trouble for consumer discretionary sector 

The Delta variant of the COVID-19 virus has short sellers flocking to the consumer discretionary sector, seeking to take advantage of the renewed pressure the virus is putting on economic activity.  

Short sellers held more than 4% of outstanding shares in the S&P 500 consumer discretionary sector at the end of July.  

The number of short sellers on the highly sensitive nonessential products and services market has been on an upward trajectory since the (presumably) final stimulus checks went out in April, and the Delta variant of COVID-19 became more impactful.  

Investment banks including Bank of America and Goldman Sachs have been slashing their GDP forecasts as the Delta variant wreaks havoc.  

The belief is that consumers are going to be more cautious with their spending as we continue into a period of renewed uncertainty. Consumers were reaching for their pocketbooks when the outlook was bright but have scaled back spending in recent months.  

This has negatively impacted the consumer discretionary sector, which caters to products and services seen as enjoyable but neither critical nor essential. In fact, the sector has recently been one of the worst performers in the S&P 500.  

“There is no hiding it. The spread of the Delta variant has got consumer confidence lower,” Norwegian Cruise Line CEO Frank Del Rio told Yahoo Finance Live.  

While consumers are hunkering back down and spending less, short sellers are taking a more advantageous approach.  

Analysts at The Transcript, which breaks down commentary from earnings call made by executives, however, told Yahoo Finance Live the economy is still in good shape overall. 

“There are some signs of dampening from the Delta variant. The slowdown may be driven by a mix of Delta, seasonality, and difficult comps,” the Transcript Team said. “Overall the economy still seems to be in great shape though. Back-to-school shopping has also gotten off to a strong start. Some of the hottest sectors, like housing, are moving from overheated to a more normalized basis. There’s not much sense of alarm.”