Short Selling of S&P 500 Increases for First Time Since March

By Matt Townsend

June 25 (Bloomberg) -- Bets against the Standard & Poor’s 500 Index rose for the first time since March as investors increased short sales of health-care companies including Merck & Co. and Cardinal Health Inc.

Short interest on the S&P 500 climbed to 9.8 billion shares as of June 15, a gain of almost 1 percent from two weeks earlier, according to data compiled by U.S. exchanges and Bloomberg and released yesterday. Wagers against health-care shares rose more than 7 percent, the most of 10 groups, to 890.3 million as President Barack Obama proposed an industry overhaul.

“Anything that’s done could be detrimental to the health- care industry in terms of long-term business prospects,” said Michael Cuggino, who as chief executive officer of San Francisco-based Pacific Heights Asset Management LLC helps manage $3.8 billion. “There’s unease. What policies are ultimately passed could be limiting future earnings of certain companies.”

Investors became more pessimistic on the health-care industry as Obama prepared a plan that aims to force greater efficiency in Medicare, reduce drug costs and cut the number of uninsured Americans. He said on June 13 that the proposal might save $313 billion for the government over the next 10 years.

U.S. stock exchanges release data on short selling, or the sale of borrowed stock with the hope of buying it back at a lower price, every two weeks. Yesterday’s report showed the first increase in bets that equities would drop since March 31.

Merck, Cardinal Health

Short interest on Merck, the Whitehouse Station, New Jersey-based drugmaker, rose 18 percent to 134 million shares. Bets against Cardinal Health, the Dublin, Ohio-based drug distributor, surged 89 percent to 5.41 million shares.

The S&P 500 plunged 38 percent last year, the biggest annual decline since the Great Depression, and sank to a 12-year low in March 2009. The measure rebounded 40 percent through June 12, the steepest rally in seven decades, on speculation that government efforts to end the first global recession since World War II are working. It then fell 5.6 percent through June 22, spurring concern that the three-month advance will be wiped out.

“The higher stock market averages go and stocks go, people get concerned there could be a correction,” Cuggino said.

Bets against financial institutions dropped almost 2.5 percent to 3.18 billion shares. Wagers against Minneapolis-based Ameriprise Financial Inc. sank the most, declining 31 percent.

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net.