A more than $125 billion institutional short position has been building up against the U.S. stock market, driven by hedge funds, according to BNP Paribas. Futures contract data points to a sharp increase in the amount of bets against the S&P 500 index SPX, -1.29% in recent months, even though the stock-market gauge has climbed nearly 17% from its mid-June low when it tipped into a bear market. Greg Boutle, head of U.S. equity derivatives strategy at BNP, said positioning has “remained defensive,” in a client note this week, which highlighted the growing short position (see chart) against the stock market.
Institutional money is lining up to short the stock market
BNP Paribas, Bloomberg, CFTC data
Boutle said that despite signs of U.S. inflation cooling from 40-year highs, it likely would take “a larger and more persistent improvement in the macro outlook, to drive a larger scale reallocation of institutional money back into equities.” The S&P 500’s sharp climb has hit resistance this week as the benchmark approached its key 200-day moving average. “At this point, after the 17% rally, all the energy is gone to push higher.” (NN bit: Please recall a rare Sunday night streaming TV show. I declared in the NASDAQ 100 a top at 13700, with great confidence i recommended everyone into the pool) said Keith Lerner, co-chief investment officer at Truist Advisory Services, by phone. “But there could be a pain trade, if the market breaks out of short-term consolidation.” Still, any breakout higher likely would be short-lived, he said, given high stock-market valuations and expectations for further global tightening of financial conditions. Federal Reserve Bank of St. Louis President James Bullard said Thursday he may support another large interest rate rise at the central bank’s Sept. 20-21 policy meeting. More broadly, fund flows also show significant interest in “short-biased” investing in roughly the past three months, according to Refinitiv Lipper data. As investors wrangle with questions about the durability of the U.S. economy as the Federal Reserve raises rates, billions have poured into funds (see chart) that consistently create a “net short” exposure to the overall market. July saw about $3.2 billion of inflows to Lipper dedicated short-biased funds, the largest monthly intake since April 2022 U.S. diversified equity funds returned an average of negative 14.2% on the year through Aug. 4, according to Refinitiv Lipper, but its dedicated short-biased funds were up 8.8% for the same stretch, when excluding those classified as focused on commodities. “The debate can continue whether or not we are in a recession, but what we can see is that there is both growing demand and supply for exposure betting against the overall market,” Fischer wrote, in a recent client note. NN: I am all in shorting this market. We are entering a deep dark recession/depression. And i want protection for us. The proven way i have done this over and over again is to short the coming appocolus.