Short Positions In US Stocks Drop Dramatically

Investors using short positions in the US stock market have seen them fall below their lowest point in over a decade. Short-sellers are left recovering from large losses from the jump in tech share prices. This year’s rally is record-breaking and means big losses for investors looking to make money from falling share prices.

Lowest Figures Since 2004

Goldman Sachs reported that at the beginning of this month, a proportion of the market capitalisation for the median stock dropped to 1.8% in the S&P 500 index short interest. This is the lowest number since the bank started recording this data in 2004.

This figure compares the beginning of the year where short interest was 2%. Over the last 15 years, it has been an average of 2.4%.

This year’s highest performing sectors were health and tech stocks. For these, short positions in relation to market value are now near to the lowest level for the period.

Brief Profit

The US stock market took a hit earlier in 2020 due to the coronavirus pandemic, which caused chaos around the world.

Between February and March, the short positions gathered paper gains of $375 billion. Since then, the stock market has bounced back, as the worth of the S&P 500 has increased by over 50%.

This has taken it to a new high in mid-August. Since the March lows, losses on short positions come in at $383.5 billion now.

Those stocks that have the largest amount of short interest have done better than the stocks with the least. This has increased the setback for short-sellers.

Bets against 3 of the top 5 largest companies in the S&P, Apple, Amazon and Facebook, are among the poorest performing for short-sellers. Those investors who have bet against Amazon have seen paper losses of $4.6 billion, as the stock has moved by 51% since February. Those betting on a drop in Facebook shares are down by $1.6 billion.

Sam Pierson, director of securities finance for IHS Markit, has stated:

“Similar results may be expected for the small-cap universe… but observing the same in the large-cap space is striking. The rally has been a challenging time for directional short selling.”