Earnings growth for the S&P 500 slowed to 1.4 percent last quarter, according to analyst projections, after averaging 4.2 percent since the start of 2012. That’s a fraction of the 28 percent mean rate for 2010 and 2011, data compiled by Bloomberg show. At the same time, the index surpassed its record on March 28 and has rallied another 8.5 percent since then, pushing the price-earnings ratio to 16.3 from 14.1 at the start of the year.

“It is hard to be too critical of being more bearish going into the government shutdown and debt ceiling battle with the market up over 20 percent,” Howard Ward, the chief investment officer for growth equity at Rye, New York-based Gamco Investors Inc., which oversees about $40 billion, said Oct. 10. “We are not out of the woods yet, so those bets may yet prove worthy.”

Hedge funds have clung to shorts since they proved profitable in 2008. The ISI measure reached 41.5 in October of that year, the lowest since 2003, after Lehman Brothers Holdings Inc.’s bankruptcy spurred the worst crisis since the Great Depression and wiped out almost $11 trillion equity value.

Grizzly Short

CRC Income Products Short Only Fund, run by Brad Golding, more than doubled investors’ money in 2008, as the S&P 500 fell 37 percent, including dividends, data compiled by Bloomberg show. The Prudent Bear Fund, run by Doug Noland and Ryan Bend, returned 27 percent in 2008. Leuthold Group LLC’s Grizzly Short Fund, which is always 100 percent short, returned more than twice that.

Equity gains this year have pushed a Goldman Sachs index of the 50 most-shorted stocks in the Russell 3000 to rally 38 percent in 2013, almost twice the S&P 500’s 19 percent gain. Of the 20 S&P 500 companies with the greatest short interest, 15 of them posted gains last month, data compiled by Bloomberg show.

U.S. Steel Corp., the third-most shorted stock in the S&P 500, increased 15 percent in September, five times the benchmark equity gauge. The country’s biggest steelmaker by volume advanced another 6.7 percent so far in October, while the S&P 500 has rallied 1.3 percent.

Safeway Shorts

Safeway Inc., the second-largest U.S. grocery-store chain, surged 24 percent last month. Short interest in Safeway was 19 percent of available shares, the sixth most among S&P 500 companies, data compiled by Bloomberg as of Aug. 30 show.

Short interest in Micron Technology Inc. was 10 percent of available shares on Aug. 30, data compiled by Bloomberg show. Shares of the largest U.S. maker of computer-memory chips are up 24 percent since then.