Short Seller Hedge Funds Rack Up $43B Loss In Recent Market Rally

The recent equity market rally, which has launched the S&P 500 on course for its best month since July 2022, squeezed hedge fund short sellers to the tune of $43 billion.

Data collected by S3 Partners showed that hedge fund short-selling losses between Tuesday and Friday last week — following better-than-expected U.S. inflation data — amounted to $43.2 billion. The data did not take into account gains hedge funds might have made from other stock positioning.

Among the shorted stocks, the most unprofitable between Nov. 14 to Nov. 20 were Tesla TSLA which cost hedge funds $909 million, Apple AAPL, costing nearly $484 million and Intel INTC.

Also Read: Peering Into Novo Nordisk’s Recent Short Interest

US Index Gains 9% In November

The S&P 500 is up nearly 9% so far this month, confounding short sellers who — having watched the index drop into correction territory after losing nearly 11% between July 27 and Oct. 27 — speculated losses had further to go.

Since its most recent bottom on Oct. 27, the SPDR S&P 500 ETF SPY, an exchange-traded fund that tracks the index, has risen by nearly 11%.

Short positions had been built on companies with large debt piles that have greater exposure to higher interest rates. But in recent weeks, there have been signs the Federal Reserve may begin to loosen its policy stance sooner than markets had previously expected.

At its last rate-setting meeting, the Fed appeared reluctant to raise rates further, and then last week inflation data showed price pressures were easing faster than expected.

The results have seen markets climb rapidly, with gains accelerating as short sellers repurchased shares to cover their short bets.

The Heaviest Short Fails

According to a report in the Financial Times, Goldman Sachs' Very Important Short Position ETF, which tracks the 50 constituents of the S&P 500 with the highest total dollar value of short interest outstanding, is on track for its best month since October 2022.

Also, among the short fails was cruise line operator Carnival Corporation CCL, which has long been a popular short. It cost hedge fund short sellers in the US and Europe around $240 million, while Blackstone Group BX cost them $269 million.

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