Bets Against U.S. Stocks Hit 15-Year Low As Short Sellers Are Crushed By Big Tech And Fed

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Written by Dana Sanchez
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Bets against U.S. stocks hit a 15-year low as short-sellers are crushed by Big Tech and the Fed. Powered by Big Tech, the S&P 500 has rallied. Photo: Federal Reserve Chairman Jerome Powell addresses the media, March 3, 2020. (AP Photo/Jacquelyn Martin)

Powered by Big Tech, this year’s stock market rally has been a challenging time for short-sellers, with bets against Amazon, Apple and Facebook — three of the five largest companies in the S&P 500 — among the worst performers.

The third week of August was a big one for markets. The S&P 500 recovered its losses from the pandemic selloff and set new all-time highs. Stocks have benefited from the Fed’s low-interest rates and easy policies, CNBC reported.

In short selling, an investor borrows a stock, sells the stock, and then buys the stock back to return it to the lender. Short sellers are betting that the stock they sell will fall in price.

Investors betting against Amazon have had paper losses of $4.6 billion as the stock jumped 51 percent since February, Financial Times reported. Those who bet on a drop in Facebook shares are down $1.6 billion during the same period, according to S3 data. Those who were counting on a drop in Apple’s stock have lost $4 billion. The maker of the iPhone this month became the first U.S. company to hit a market capitalization of $2 trillion, just two years after breaking the $1 trillion mark.

Tesla, which is not in the S&P 500, has been the worst short bet in the U.S. market since the peak in February. Short sellers have lost $13.8 billion as the automaker’s stock rose to 120 percent.

Not all stocks have rallied, Financial Times reported. Share prices are down more than 50 percent below their all-time highs for about 20 percent of S&P 500 companies. The average stock in the index is 28.4 percent below its peak, according to research group Cornerstone Macro.

Still, short interest as a proportion of market capitalization for the median stock in the S&P 500 index fell to 1.8 percent at the beginning of August, according to figures from Goldman Sachs. That’s the lowest since Goldman started tracking the data in the 2004. By comparison, that number was 2 percent at the beginning of 2020 and has averaged 2.4 percent in the past 15 years.

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Since the markets collapsed in February and March, the Fed has cut rates to zero and helped increase liquidity. It also created lending programs and continues to buy a large amount of Treasury securities and mortgages. Its balance sheet has now ballooned to $7 trillion, CNBC reported.

There’s no sign of the Fed changing its policies anytime soon.

“The basic Fed policy is crystal clear. You’re going to have low rates for the foreseeable future. They will do whatever it takes,” said Ed Keon, chief investment strategist at QMA. 

“What they’re saying is if the economy starts to recover, let’s say we get a vaccine or the rate of infection goes down, and the equity market is on a tear, they’re not going to stop it,” said Jim Caron, fixed income portfolio manager with Morgan Stanley Investment Management. “They’re going to stay there for a while.”