Short positions in U.S. equities have fallen to their lowest level in more than a decade as this record-breaking rally this year inflicts huge losses on investors trying to take advantage of declining stock prices.
Short-term interest as part of the market capitalization for the median in the S&P 500 index fell to 1.8 percent at the beginning of this month, according to Goldman Sachs, the lowest since the bank began data in 2004 to follow. That compares with 2 percent at the beginning of the year, and an average of 2.4 percent over the past 15 years.
For tech and health stocks, the sectors with the best performance of the year, short positions relative to market value now stand at or near the lowest level for the period analyzed by the bank.
The U.S. stock market tumbled earlier this year when the Covid-19 pandemic spread around the world. From the previous market high in February to its low in March, short positions have made paper profits of $ 375 billion, according to S3 Partners, a data provider.
But stocks have been booming since then, adding more than 50 percent to the value of the S&P 500, and took it to a record closing high last week. Losses from mark-to-market on short positions are now at $ 383.5bn since the low of March.
Shares with the largest amount of short-term interest rates have outperformed those with the least, intensifying the blow for short-term sellers, according to IHS Markit, a data provider.
“Similar results can be expected for the small-cap universe. . . but the same observation in the space with large caps is striking, “said Sam Pierson, director of securities finance for IHS Markit.” The rally has been a challenging time toward short selling. ”
Bets against Amazon, Apple and Facebook, three of the top five biggest companies in the S&P 500, are one of the worst performances for short sellers this year, as tech-focused giants have driven the rally.
Investors betting against Amazon have expected paper losses of $ 4.6bn as the share has jumped 51 percent since February, while those falling on a fall in shares in Facebook are down $ 1.6 billion for the period, according to S3 .
Those positioned for a drop in Apple’s share have lost $ 4bn during that time. Last week, the iPhone maker became the first U.S. company to hit a $ 2tn market capitalization, just two years after breaking the $ 1tn mark.
Tesla, which is not in the S&P 500, is the worst short bet on the US market since the peak of February. Short sellers suffered paper losses of $ 13.8bn, according to S3 data, as the carmaker’s share rose more than 120 percent during the period to close at a record high on Friday.
Elon Musk, CEO of Tesla, has been saving for years with investors betting against the company’s company and losing the month taunted short sellers when the company’s share rose by selling red satin shorts on Tesla’s website.
But because tech stocks have increased, many other sectors have been left behind.
Share prices of a fifth of S&P 500 companies were more than 50 percent below their all-time high on Friday, while the average share in the index is 28.4 percent below its high, according to Cornerstone Macro, a research group.
