Even as the paper losses on positions exceed $100 billion, short sellers continue to increase their bets against US stock.
S3 Partners LLC data shows that the total US short interest or the amount of money traders bet against US stocks, exceeded $1 trillion in this month, as the S&P 500 Index continued to rise. The total reached its highest level since April 2022, before reversing a little as stocks fell for the third consecutive day.
Contrarian bets indicate that traders believe the S&P 500’s 14% rally will slow down in 2023. They are waiting for the market’s turn to their advantage, while suffering steep losses. According to S3, the positions have lost about $101 billion in this year.
Arthur Hogan is the chief market strategist of B. Riley Wealth. He said that there’s a relationship between the market’s success and the pessimism which builds as this success increases.
Hogan stated that building a bearish attitude can be a support to the market. He said that if shorts are still on the wrong side, they might need to buy stocks back to exit their position, which would further boost the stock market.
US stocks gained in 2023 due to better-than expected earnings and a recent tech rally fueled by the frenzy surrounding artificial intelligence. This month, the S&P 500 entered a technical bull market. It has defied fears of a recession following the Federal Reserve’s aggressive interest rate hike campaign.
The stock market fell Wednesday after Fed chair Jerome Powell warned of the need for higher rates to combat inflation.
Wall Street has divided opinions on the direction of stocks. Although bulls might still be in the lead after the S&P 500’s strong start to this year, bears are insisting that stocks will continue to fall, with strategists like Citigroup Inc.’s Scott Chronert repeating their downside targets.
Stocks like Tesla Inc., Apple Inc., Microsoft Corp. and NVidia Corp. are among the top short sellers. The list is topped by Tesla Inc. Apple Inc. Microsoft Corp. Nvidia Corp.
According to S3, Tesla bears bet $26 Billion against the stock in this year. They are now carrying losses of over $14 Billion on paper as the stock has doubled. S3 reports that there’s no sign of them dumping their bets.
Tesla shares fell on Wednesday after Dan Levy of Barclays Plc said that the EV maker had rallied too rapidly, and downgraded it to equal-weight.