After a sharp 23% rebound in the S&P 500 since April, hedge funds are now stacking record levels of bearish bets against stocks as investors question the staying power of the tariff-relief rally.
Hedge funds have added $25 billion in short equity futures exposure over the last three Commitments of Traders (COT) reports—marking the largest three-week increase in at least a decade.
This surge underscores deepening skepticism about the market's resilience following its V-shaped recovery after the tariff selloff.
Gross leverage, which includes both long and short exposures, has climbed to an all-time high, according to Goldman Sachs analyst Ben Snider.
Although net leverage—longs minus shorts—remains below February levels, the acceleration in short interest has changed the landscape.
“As growth and inflation begin to reaccelerate, hedge funds and CTAs continue to fight the cycle—doubling down on long bonds and short risk. The macro bears aren't giving up without a fight,” said Oskar Vårdal, analyst at Steno Research.
Where Are Hedge Funds Targeting Shorts?
Funds are targeting both exchange-traded funds (ETFs) and single-name stocks.
According to data from Goldman Sachs, ETF short interest hit $218 billion in the second quarter, while single-stock short interest reached $948 billion. In over a decade, April alone saw the most significant jump in U.S. ETF short selling.
Among U.S.-listed ETFs, SPDR S&P Regional Banking ETF (NYSE:KRE) saw its short interest soar by 50 percentage points since mid-February, now totaling 96% of float. SPDR S&P Biotech ETF (NYSE:XBI) rose 27 points to 111%, while iShares Russell 2000 ETF (NYSE:IWM) climbed to 33%.
ETFs with the most historically elevated short interest include VanEck Gold Miners ETF (NYSE:GDX) at 12% of float (100th percentile vs. history, First Trust NASDAQ-100 Tech ETF (NASDAQ: QTEC) at 4% (98th percentile), and iShares Core S&P Mid-Cap ETF (NYSE:IJH) with $1 billion shorted (98th percentile).
Defensive Sectors Are Under Pressure
The rise in short interest has been especially acute in defensive sectors. Short interest in consumer staples, utilities, and healthcare sectors now ranks in the top quintile compared to historical norms. The median S&P 500 stock now has a 2.3% short interest relative to market cap, ranking in the 61st percentile over the last 30 years.
Only the financials and information technology sectors show short interest below their long-term averages.
Which Stocks Are Being Targeted By The Heaviest Bearish Bets?
Large-cap stocks that have seen the biggest spikes in short interest since the February peak include:
- Somnigroup International Inc. (NYSE:SGI): 13% of float, up 10 percentage points.
- Lucid Group Inc. (NASDAQ:LCID): 30% of float, up 8pp.
- Amer Sports Inc. (NYSE:AS): 12% of float, up 8pp.
- Medpace Holdings Inc. (NASDAQ:MEDP): 11% of float, up 6pp.
- Moderna Inc. (NASDAQ:MRNA): 18% of float, up 6pp.
- First Solar Inc. (NASDAQ:FSLR): 11% of float, up 5pp.
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