Short sellers who bet on stock price declines have reportedly earned about $10 billion in profits in the second quarter of this year, despite the rising trend in the U.S. New York stock market. While losses were significant in the technology stock rally led by Nvidia, industrial, healthcare, and financial stocks played a key role in offsetting these losses, according to analysis.
Bloomberg News reported on the 9th (local time), citing data from data analytics firm S3 Partners, that the unrealized gains of U.S. short sellers in the second quarter amounted to $10 billion (approximately 13.85 trillion KRW).
Igor Dusaniwsky, Managing Director at S3 Partners, mentioned companies such as IBM and Cloudflare, which showed a declining stock price trend throughout the second quarter despite the New York stock market rally, stating, "Short sellers made good stock selections in the second quarter." Short selling is a trading technique where investors borrow stocks and sell them at a high price first, then buy them back at a lower price to return the shares, thereby making a profit. A stock price decline is favorable for short sellers.
By sector, the industrial ($7.6 billion), healthcare ($6.9 billion), and financial ($4.9 billion) sectors showed weakness and delivered the highest profits to short sellers. The unrealized gains in these three sectors far exceeded the $15.7 billion unrealized losses in the technology sector. Additionally, short sellers earned profits in discretionary consumer goods ($3.4 billion), energy ($2.7 billion), materials ($2.3 billion), staples ($1.5 billion), and utilities ($1.3 billion) sectors.
The reason short sellers were able to profit despite the New York stock market rally is primarily attributed to the recent rally being concentrated in some big tech companies. In an uncertain macroeconomic environment, sectors other than technology had vulnerabilities where bets on declines could succeed.
The S&P 500 index, a representative stock index of the New York stock market, rose 3.9% in the second quarter, but this was largely due to the nearly 37% surge in the stock price of Nvidia, the AI (artificial intelligence) leader, during the same period. Quincy Crosby, Global Chief Strategist at LPL Financial, commented, "This is the most common recent view. The market was too narrow."
Short sellers also invested $33 billion in technology sector stocks showing price increases, such as Google Alphabet and Meta Platforms. They judged these stocks to be overvalued and bet on price declines. On the other hand, short positions on Tesla were reduced. Approximately $2.2 billion worth of short positions were closed in the second quarter alone. Bloomberg News reported, "Tesla, which was the largest short-selling target last year, has fallen to fourth place this year." Additionally, the sector with the most short position liquidations during the second quarter was the energy sector.
Managing Director Dusaniwsky said, "Market speed is more important than a company's fundamental basics," explaining that some short sellers succeeded in making profits by moving quickly according to market momentum. However, Bloomberg News noted that such momentum can change instantly. Strategist Crosby pointed out that with second-quarter earnings announcements upcoming, disappointing results from major big tech companies could cause stock prices to plummet. The Federal Reserve's interest rate decisions are also considered a variable that could impact the market at any time.
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