Short Sellers' Nightmare: $195B Evaporates In 2023's Market Surge

In a year when equity markets rallied strongly, short sellers — traders who position for losses on assets — had an extremely tough time in 2023.

Data published on Friday by S3 Partners showed that short sellers in the U.S. and Canada were down $194.9 billion in 2023 — down 20.4% on an average short interest of $958 billion.

These mark-to-market losses of 2023 offset two thirds of the $299.1 billion gain seen in 2022, with the biggest losses coming from the technology and consumer discretionary sectors.

The biggest IT-based exchange traded fund by value of assets is the Vanguard Information Technology ETF VGT and it gained 44.7% during 2023. Similarly, the biggest consumer discretionary ETF, the Consumer Discretionary Select Sector SPDR Fund XLY was up 33.4% in 2023.

Least Profitable Short Positions

It probably doesn’t need mentioning which were the least profitable short trades — let’s just run through the top three names:

• Tesla Inc TSLA — $12.2 billion total net loss
• Nvidia Corp NVDA — $11.2 billion loss
• Apple Inc AAPL — $7.3 billion loss

After the remaining Magnificent Seven stocks followed a host of Nvidia’s rival semiconductor makers. Indeed, the iShares Semiconductor ETF SOXX, an exchange traded fund that tracks the Philadelphia Semiconductor Index, was up 65% in 2023.

Cryptocurrency shorting wasn’t very profitable either, and also among the biggest equity short losses was Coinbase Global Inc COIN, the crypto exchange, which lost short sellers $4.9 billion as the stock soared 341% higher in 2023.

Where Did Short Sellers Make Any Money?

There were a few high-profile bankruptcies in 2023 which allowed short sellers some easy pickings from low-hanging fruit.

The collapse of First Republic Bank — the second such banking failure during last year’s regional bank crisis — provided shorts with the biggest opportunity.

From average short interest of $194.3 million, the total net profits reaped from the rapid share price decline and eventual demise of First Republic were $1.63 billion.

The third-biggest total net gain was $1.06 billion from average short interest of $218.2 million, on short bets during the demise of Silicon Valley Bank, the first regional bank to collapse back in March.

In second and fourth places came a pair of pharmaceuticals companies. Moderna MRNA in second place with total net profits of $1.2 billion and Pfizer PFE in fourth with $990.4 million as both companies reported dwindling sales and failures to cash in on the weigh-loss drug phenomenon that swept players such as Eli Lilly LLY rapidly higher in 2023.

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