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Bearish Bets Against S&P 500 Are Surging, Despite Love for Big Tech

Norm understood the stock market. RIP.

Bearish Bets Against S&P 500 Are Surging, Despite Love for Big Tech

Index would be negative for the year without the contribution of seven big tech companies

By Hardika Singh, WSJ

June 4, 2023 12:01 am ET

Chip maker Nvidia has seen its shares nearly triple in price this year.

Wall Street hasn’t been this bearish on the stock market in more than a decade. Tech shares are a different story.

Hedge funds and other speculative investors have built up a big bet that the S&P 500 will decline, marking their most bearish positioning since 2007. At the same time, they are preparing for a rally in the technology-focused Nasdaq-100, with net bullish wagers in recent weeks approaching the highest levels since late last year.

That is according to data from the Commodity Futures Trading Commission compiled by Bespoke Investment Group, when measured as a percentage of open futures-market interest.

The divergence in positioning reflects the fragility of the 2023 stock rally, strategists say. The S&P 500 is up 12% this year, but it would be negative without the contribution of seven big tech companies, according to S&P Dow Jones Indices data through the end of May. That potentially leaves the index vulnerable to a steep pullback if even one or two big companies misstep.

“People are certainly showing signs of caution, regardless of how price has gone,” said Jake Gordon, an analyst at Bespoke Investment Group.

Of course, pessimistic positioning of this scale can be a contrarian indicator, he said. When bearish or bullish sentiment goes to extreme levels, sooner or later the market tends to move in the opposite direction.

Stocks rallied last week, with investors cheering the resolution of the debt-ceiling fight, along with signals from Federal Reserve officials that they are likely to hold interest rates steady at their June meeting—before raising them yet again. Meanwhile, the frenzy around artificial intelligence helped shares of chip makers, like Nvidia, soar.

In coming days, investors will get a fresh look at U.S. service-sector activity with the Monday release of the Institute for Supply Management index for May, along with insight into the April trade deficit on Wednesday.

The S&P 500’s rally puts it on the cusp of a new bull market, which is typically measured as a 20% gain from a recent low. The index, which settled Friday at 4282.37, would need to close at or above 4292.438 to end what is currently the longest bear market since 1948. The S&P 500 and the Nasdaq-100, with its 33% year-to-date gain, are hovering near one-year highs.

As the indexes have climbed this year, so has the short interest in the market. Bets against the S&P 500 have climbed steadily to $487 billion, though that is down from a peak of $558 billion in November 2021, according to technology and data analytics company S3 Partners.

Short sellers borrow shares and sell them, intending to repurchase them at lower prices and pocket the difference. Investors shorting the market might be placing an outright bet that stocks will fall or reducing their exposure to a market downturn while betting that particular stocks will outperform. They made huge gains during the 2022 market tumult, but their fortunes reversed when the indexes began rebounding.

Big tech stocks have some of the highest short interest in the market. Last month, investors added $3.57 billion to their short positions against Tesla, $2.5 billion against Nvidia and $7.26 billion against Facebook parent Meta Platforms, S3 Partners data show. All three stocks rallied in May, leaving short sellers with more than $7 billion in losses.

“It’s been a bad month if you were shorting these tech names,” said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.

That is because the market’s leaders were responsible for an outsize share of its gains in May. Shares of the 10 largest companies in the S&P 500 climbed 8.9%, while the other 490 fell 4.3%, according to Bespoke. The index as a whole inched up 0.2%.

Tech stocks are back in a familiar position at the top of the stock market’s leaderboard after slumping last year. That is partly thanks to the boom in interest in what is known as generative artificial-intelligence technology.

Shares of Nvidia, the graphics chip maker at the heart of the frenzy, have nearly tripled this year, helping the company’s market value briefly top $1 trillion last week. Microsoft, which unveiled a $10 billion investment in ChatGPT developer OpenAI in January, has surged 40%. Other big tech stocks, like Meta Platforms, have soared as well.

Jordi Visser, chief investment officer at Weiss Multi-Strategy Advisers, said he believes the AI revolution will make small businesses more productive and change the way people work. He has been taking Python classes over the past few weeks to get the most use out of the AI chatbot so he can be more efficient at work, he added.

“Artificial intelligence should make the playing field more competitive for smaller businesses,” he said. “Bigger companies’ bigger issue is they’ll be more productive, but I don’t think it’s a guarantee that they’re going to be the winners.”

Other investors are looking to profit from a continued rally in the tech sector. Traders have rushed into bullish options bets, seeking to amplify their gains if tech shares keep climbing. Activity in Nvidia call options hit one of the highest levels on record in recent sessions, as did the popular Technology Select Sector SPDR Fund, according to Cboe Global Markets data. Call options give investors the right to buy shares at a specific price, by a stated date. Puts confer the right to sell.

There are still obstacles ahead for tech stocks. A resilient labor market and stubbornly high inflation have raised the likelihood that the Fed will keep lifting interest rates or hold them at elevated levels. Tech stocks are particularly sensitive to higher rates because they are valued based on their promise of big profits.

“It’s a really difficult and challenging environment to navigate because at the moment markets are not moving on fundamentals,” said Aliki Rouffiac, portfolio manager at Robeco, who added that she has increased her allocations to money-market funds and bonds related to the European financial sector.

-Gunjan Banerji contributed to this article.

Write to Hardika Singh at

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