Short S&P 500 ETF Sees Most Demand Since 2010 in Aftermath of Rout

(Bloomberg) -- The S&P 500 Index has registered two straight weeks of gains after December’s near-bear market encounter. But that’s not keeping some exchange-traded fund investors from betting that the turbulence isn’t over.

The $2.3 billion ProShares Short S&P 500 ETF, ticker SH, took in nearly $380 million last week, the most since 2010. Although Friday saw the S&P 500’s third-biggest rally since 2012, the inflows, which came toward the end of the week, show that not everyone sees blue skies for stocks.

“There will be people, bears in particular, that will say the kind of rallies on Friday and the one we saw on the day after Christmas only happen in bear markets,” said Michael Antonelli, equity sales trader at Robert W. Baird. “That’s the mantra of bears right now. They say, ‘You only see 3, 4 or 5 percent rallies when the market is in a churning bear. I’m going to short any time the market bounces like this.”’

Short S&P 500 ETF Sees Most Demand Since 2010 in Aftermath of Rout

To a more bullish Antonelli, such wariness could be a positive signal for stocks since it shows sentiment -- which can be contrarian -- hasn’t completely flipped the switch from negative to entirely positive.

“We would want to see people continue to short the market because that means there’s still non-believers,” he said. “There’s still people out there that think that this is just a little bear market bounce.”

Bloomberg Intelligence analyst Eric Balchunas sees investors using the SH fund for a more long-term hedge, “albeit one implemented with awful timing.”

“This looks like people coming back from the holiday and hedging their portfolio, but unfortunately for them they got bulldozed by a good jobs report and a newly dovish Fed,” Balchunas said.

Still cautious on U.S. stocks is Morgan Stanley’s Mike Wilson. The firm’s chief U.S. equity strategist recently warned clients that Apple Inc.’s cut to its revenue forecast and a slide in a gauge of U.S. manufacturing could just be the start of a raft of negative news to come.

“We don’t think it is time to blow the all-clear signal yet,” Wilson wrote in a note to clients.

But even with lingering uncertainty surrounding trade, the economy and earnings, it probably isn’t wise to bet against the entire U.S. stock market, according to Jeanie Wyatt, founder and chief investment officer of South Texas Money Management.

“Some stocks are going to do great, some terrible, some sectors better than others -- but to just broadly short this market, I would not even contemplate it,” she said by phone. “There is negative sentiment, a lot of it cued off the final weeks of 2018, but this is not a market you want to broadly short.”

©2019 Bloomberg L.P.