Reddit broke Wall Street.
Today’s market is a perfect setup for shorts. Stocks are at all-time highs, indexes are trading at record highs, and investors diving in at record numbers.
But something has happened.
After the GameStop, AMC, Nokia, and BlackBerry debacle, hedge funds have been frightened away from the short market.
The Wall Street power players no longer want to short stocks for fear of falling victim to the decentralized hedge fund known as Wall Street Bets.
Bloomberg has the story:
Wall Street bears battered by the Reddit crowd earlier this year have yet to regain their gumption, even with stocks at records and valuations near two-decade highs.
The median short interest in members of the S&P 500 sits at just 1.6% of market value, near a 17-year low, according to Goldman Sachs Group Inc. In Europe, a short-covering frenzy has sent bearish bets collapsing like never before in Morgan Stanley data.
At the same time, hedge-fund longs are around the highest relative levels in years at JPMorgan Chase & Co.’s prime brokerage.
They’re all signs of the bullish mania propelling global equities to fresh records this month, thanks to the economic re-opening and big policy stimulus. The smart money has little appetite to wager against either expensive or deadbeat companies — especially after being lashed by the day-trader army earlier this year.
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Elevated valuations would seem to provide ammo for short sellers. The S&P 500 is trading at around 23 times next year’s earnings, near the highest since 2000. Compared with the 10-year Treasury yield, the benchmark is offering the thinnest risk premium since 2010.
But bearish bets are proving painful. A Goldman Sachs basket of the most-shorted stocks has surged three times as much as the broader U.S. market in 2021, partly because a horde of Robinhood traders stampeded into a few short targets last quarter.
No wonder so many investors have given up. According to a survey by the National Association of Active Investment Managers, the most-bearish group that typically holds a net-short position has actually stayed long or at least neutral in 21 of the past 25 weeks. That’s a bullish stretch not seen since 2018.
Indeed, the self-proclaimed retards broke the smartest men and women in the room.
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