Most-Hated Stocks Are Rallying

From Bloomberg:

Speculators are abandoning money- losing bets that stocks with the closest links to the U.S. economy will fall as America’s most-hated shares stage the best rally in a year relative to the broader market.

The 20 stocks with the highest short sales in the Standard & Poor’s 500 Index rose an average of 5.1 percent in December, compared with 0.7 percent for the full gauge, according to data compiled by Bloomberg. The performance gap is the widest since January 2012. Companies from U.S. Steel Corp. (X) to J.C. Penney Co. are gaining at the expense of phone companies and utilities, which usually do best when the economy contracts.

Market bulls say the capitulation underscores growing confidence in the U.S. recovery, while bears say the rally shows indiscriminate buying as earnings estimates fall close to a one- year low. The change echoes money manager Laszlo Birinyi’s prediction that the four-year bull market will finally attract investors who have stayed away from equities.

“Let’s put it this way, I made more money on my longs than on my shorts,” Gilles Sitbon, who helps oversee $2.1 billion at Sycomore Asset Management in Paris, said in a phone interview on Jan. 3. His Sycomore Long-Short Opportunities fund rose 15 percent in 2012. “It’s not just hard to be short, it is painful.”

Posted by on January 7th, 2013 at 12:47 pm

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