(Bloomberg) -- Skepticism is one thing this stock market rally hasn't lacked. You just have to look for it.
The Nasdaq is setting records while the S&P 500 hovers near an all-time high. Betting against the market when it's putting up these kinds of numbers can be a sucker's game, and not surprisingly the biggest ETF tracking the S&P 500 has seen bearish bets plummet to their lowest level in 10 years.
But a funny thing has happened to stocks this year. As investors assess the winners and losers from the Trump administration's policies and digest mixed economic data, they aren't endorsing all shares. In fact, for the past two months the discrepancy between bearish bets on individual stocks versus State Street's SPDR S&P 500 ETF (SPY) has grown to the widest since at least 2008, according to exchange-reported figures.
Shorting the S&P 500 as a whole through the ETF is hardly ideal because you can't pick sectors. So you end up betting against the tech giants like Apple, Facebook and Amazon that have carried the market through the later stretches of the bull market. Technology and financial stocks, two tricky sectors to short, now constitute more than a third of the gauge. Indeed, finance shares have the fewest bearish bets among the 11 industry groups in the S&P 500, just 1.9% of the float.
But this doesn't mean traders are having trouble identifying losing S&P 500 companies to short.
"Everything has been going up, and there are definitely some stocks that shouldn't," said Matt Maley, an equity strategist at Miller Tabak. "People are going in, saying hey, the market may be going higher, but this stock is up for the wrong reasons because of all the passive investing."
Short interest in SPY has dropped 3.2% in 2017 to hover just above a 10-year low set on March 31, according to the latest exchange figures on April 13. At the same time, total short interest among individual stocks in the S&P 500 has risen 2.1% and 5.5% for the entire U.S. market, data compiled by Bloomberg show.
"A lot of that has to do with very few shorts on the top few that have led over the last few months," said Frank Cappelleri, executive director at Instinet in New York. "They clearly have an influence on every S&P 500 or SPY measurement."
On the flip side, consumer discretionary shares lead all S&P 500 sectors in short interest, at 6.3% of float. The two worst performing sectors in the index this year — telecommunications and energy — follow right behind.
The last time the gap between total market short interest and SPY short interest diverged to such an extreme degree was during the correction in 2011. The difference is at that time it was SPY short interest that surged while the total market remained steady, as bearish traders were quick to skip over stocks that didn't deserve to dive with the entire market.
To be sure, short interest ratios ticked up for both S&P 500 stocks and SPY in April. However, the move was for pronounced for the index, which which has a short interest ratio of 4.5%. SPY's short interest ratio is 2.2%.
The bottom line: Whether stocks head toward another rough patch or continue to march higher, shorting the entire market presents difficulties, Maley said.
"If we get a correction like we got last year in 2016, with things that are so highly passive now, you're going to get some babies falling out with the bath water," he said. "It's difficult when shorting totally different types of stocks. When the market goes higher, they'll still get squeezed to a certain degree."