Short interest in S&P 500 stocks hits 3% of market cap, the highest since 2012, despite index trading near all-time highs.
Hedge funds have increased short bets on U.S. stocks to levels not seen in over a decade, even as the S&P 500 and NASDAQ 100 approach record highs. Short interest in the median S&P 500 stock has doubled since the pandemic, reaching 3% of market capitalization, a typically bearish signal amid a rallying market.
This divergence is unusual, as rising short positions often coincide with market declines rather than record highs. The current setup, driven by optimism over a potential U.S.-Iran deal, could trigger a short squeeze if positive developments materialize, amplifying gains in heavily shorted sectors.
Data from FactSet and Goldman Sachs highlights the growing disconnect between bearish positioning and bullish price action, a dynamic rarely sustained for long periods.