Although the S&P 500 has rebounded 18% since late March, short interest in U.S. equities has countertrended to record highs, underscoring deep market concerns over the sustainability of the current rally. According to S3 Partners, short interest in S&P 500 constituents has reached nearly 3.79% of free float, the highest since the firm began tracking the data in 2010. The short ratio for Russell 3000 components has climbed even further to 6.3%, also a record high. Meanwhile, total short positions in U.S. and Canadian equities have increased to $2.13 trillion, the highest on record, while the median net short interest as a percentage of market cap for S&P 500 stocks rose to 3%, the highest level since the end of 2011.
The concentrated direction of short bets is clearly aimed at the AI and semiconductor sectors. In dollar terms, the largest short positions include the “Magnificent Seven” technology stocks as well as chipmakers such as Micron Technology (MU) and Broadcom (AVGO). Michael Burry, the investor portrayed in “The Big Short,” recently disclosed a new round of bearish wagers covering names including Nvidia (NVDA), Applied Materials (AMAT), and Tesla (TSLA). Short sellers in this space have already seen some gains: according to Bespoke Investment Group, stocks with the highest short interest in the Russell 3000 have fallen 15% on average this year, while all other stocks in the index have risen nearly 21%. In addition, since its IPO in June, SpaceX (SPCX) has traded below its $135 offering price, with short interest accounting for approximately 29% of its public float, generating nearly $5 billion in paper profits for shorts.
Despite the surge in short interest, the S&P 500 has remained range-bound since hitting 7,500 in May, with this resilience stemming from the simultaneous presence of long-side buying. Investor purchases have largely offset bearish sentiment, keeping the market in a sideways consolidation. S3 Partners data shows that investors have committed roughly twice as much capital to long positions as to short positions, leaving the market in a fragile balance. At the same time, Goldman Sachs data indicates that hedge funds are covering short positions in U.S. individual stocks at the fastest pace in three months, with semiconductor positions seeing particularly concentrated buybacks, highlighting the complex dynamics of the long-short tug-of-war.
This week’s earnings reports from tech giants will be a critical variable. Goldman Sachs believes that the recent tech selloff was driven by crowded positioning, and while the deleveraging process is nearing its end, a near-term catalyst for reversal remains absent. JPMorgan, on the other hand, expects tech stocks to face continued pressure for several months. Joseph Saluzzi, a partner at Themis Trading, said: “Earnings season and geopolitical developments will be key factors influencing the market for the remainder of this month.”
