Bearish bets across US stocks are surging to a record in the face of market gains, reflecting anxiety about the staying power of a rally that has seen the S&P 500 jump 18% from late March.
Short interest in S&P 500 Index stocks is sitting steps away from 3.79% of free float, an all-time high in data tracked by S3 Partners LLC going back to 2010. For the Russell 3000 companies, the figure has recently climbed to 6.3%, a record.
While betting against stocks has generally been a losing proposition this year, short sellers are sticking to their guns as worries about the payoff from artificial intelligence investments keep rattling the markets. Concerns about AI-related spending and competition from China sent the S&P 500 down 1.6% last week.
“Short selling has increased and the breadth of names shorted has increased,” said Ihor Dusaniwsky, manager of predictive analytics at S3 Partners.
A nearly four-year bull run in US equities has suffocated short sellers, pushing many of them to hedge their bearish positions with net-long bets. Investors have roughly twice as much invested in long bets than in short positions, S3 Partners’ data show.
Still, bears’ persistence in amassing short positions signals worries about the market that until early June went nowhere but up.
Short interest in the stocks listed on the New York Stock Exchange has been rising since February and reached 9% of shares outstanding in late June, a record, data compiled by Reynolds Strategy LLC show. That compares with 5% during the Global Financial Crisis and about 6% during the Covid-19 pandemic.
Short interest has recently “gone vertical,” according to Brian Reynolds, chief market strategist at the firm.
To Reynolds, the elevated bearish interest is likely offset by investor purchases of stocks. Those two offsetting forces have kept stocks drifting sideways over the past month, which has washed out some speculative excesses that may pave the way for a rally.
“We continue to believe that retail investors will persist in taking stocks to new highs over time, and that buybacks will accelerate on any downturn, helping to lift stocks off their lows,” he said in a Thursday note to clients.
Hedge funds have been going in the opposite direction lately, covering short interest in single stocks in the US at the fastest pace in three months, data compiled by Goldman Sachs Group Inc. show.
To be sure, even if investors haven’t turned a profit on the average bearish bet so far this year, some of the most heavily shorted stocks have provided them with solid returns.
Names with the highest short interest in the Russell 3000 — the likes of Hertz Global Holdings, Eos Energy Enterprises Inc., Once Upon a Farm PBC and Dave & Buster’s Entertainment Inc. — have dropped 15%, on average, this year, compared with a nearly 21% gain for the all the other stocks in the index, according to Bespoke Investment Group. The Russell 3000 is up 9.3% so far in 2026.
Some of those heavily shorted names, including Hertz, have been highly profitable shorts. The car rental provider has dropped 65% so far this year and roughly 79% of its shares have been sold short.
The same dynamic is playing out across the largest stocks in the market. The S&P 500 has climbed 9.3% and the stocks that have accumulated the largest short interest in dollar value include the Magnificent Seven group of technology giants and chipmakers including Micron Technology Inc. and Broadcom Inc., S3 Partners data show.
Major exceptions include those whose short interest make up a large percentage of their float. Space Exploration Technologies Corp. was the ninth-most shorted stock in the US market before Friday’s drop, with $25 billion in bets against it, representing nearly 29% of its float. SpaceX shorts are up nearly 28% or $4.8 billion in mark-to-market profits so far this year, according to S3 data.
“The increase in level of short interest is a sign of investor worry,” said Joseph Saluzzi, partner and co-head of equity trading at Themis Trading LLC. “Concerns about AI spending and huge moves in the semiconductor sector have increased investor skepticism” even as “fear is contained” in the broader market for now. “Earnings season and geopolitical concerns will be big factors for the rest of this month.”
Written by: Geoffrey Morgan @Bloomberg
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