During the U.S. stock market rebound, hedge funds' short selling reaches a ten-year high, while retail investors break records by buying the dip in a contrarian move.

Taiwan • Business • 05/21 14:50
During the U.S. stock market rebound, hedge funds' short selling reaches a ten-year high, while retail investors break records by buying the dip in a contrarian move.

During the recent rebound in the US stock market, hedge funds have been aggressively shorting, with the COT report indicating cumulative short positions amounting to $25 billion, hitting a ten-year high. Meanwhile, retail investors, unfazed by market uncertainty, continue buying the dips, with single-day net purchases reaching a new all-time high. This highlights a significant split in market sentiment, with institutions remaining skeptical of the rebound while retail investors view it as a buying opportunity.

Key Updates

05/22 06:51

May 22, 2025, U.S. Stock Futures Market: Dow Jones down, S&P 500 up, Nasdaq 100 fluctuating (in Taipei Time)

On May 22, 2025 (Taipei time), the futures of the three major U.S. stock indices were mixed. Dow Jones Industrial Average futures stood at 41,951 points, up 4 points (+0.01%); S&P 500 futures stood at 5,870 points, up 8.75 points (+0.15%); Nasdaq 100 futures stood at 21,197.25 points, up 40.5 points (+0.19%). According to MoneyDJ data at 1:31 PM, the market stabilized in the afternoon, with the Nasdaq leading the gains. The previous day's spot market had declined across the board due to factors like the fiscal deficit, causing volatility in the futures market's early trading session.

05/22 02:50

May 22, 2025 U.S. Stock Futures Market: Dow slightly declined, S&P and Nasdaq rose slightly

On May 22, 2025, at 08:35 Taipei time, the U.S. stock futures market showed a mixed performance. Dow Jones Industrial Average futures dropped 17 points to 41,930, down 0.04%; S&P 500 futures increased by 2.25 points to 5,863.5, up 0.04%; Nasdaq 100 futures edged up 2 points to 21,158.75, up 0.01%. The previous trading day saw major U.S. stock indices generally closing lower, and the slight fluctuations in the futures market reflect investors' cautious stance on the market outlook.

05/22 01:47

U.S. stock index futures remain stable as concerns over the deficit trigger a sell-off, the market is in a wait-and-see mode, and CNBC says the so-called "Trump put" is unlikely to happen.

U.S. stock index futures remained stable in early trading on Thursday as the market absorbed the previous day's sell-off triggered by worries about the federal deficit. On Wednesday, the Dow Jones Industrial Average fell more than 800 points, while the S&P 500 and Nasdaq dropped 1.61% and 1.41%, respectively, due to the surge in U.S. Treasury yields. Investors are concerned that the tax and spending bills being reviewed by Congress could worsen the fiscal situation. CNBC pointed out that the deficit issue is hard to solve through administrative measures, and a "Trump backstop" scenario is unimaginable.

05/21 22:18

At the Berkshire Hathaway shareholders meeting, Buffett emphasized that investment opportunities in the stock market are superior to those in real estate, backed by 40 years of data.

At the Berkshire Hathaway annual shareholders meeting in early May 2025, 94-year-old Warren Buffett emphasized that investment opportunities in the U.S. stock market are far greater than in real estate. He cited data from the past 40 years showing that returns from the S&P 500 index have significantly outperformed those of the housing price index, and he emphasized the ease and efficiency of stock trading. Buffett's perspective responded to current market concerns about the sluggish housing market and stock market volatility, and he expressed his confidence in the long-term growth of the U.S. economy.

05/21 18:19

The US lifts AI chip export restrictions, leading to a rise in US stocks, while the tax cut bill leads to a sell-off in US bonds and a weaker dollar.

In mid-May, the U.S. Department of Commerce lifted export restrictions on Chinese AI chips, which boosted U.S. tech stocks and led to impressive performances by related funds. The Congressional tax cut bill has raised concerns about the fiscal deficit, resulting in a sell-off of U.S. Treasuries, pushing the 30-year yield above 5%, and a weaker dollar index. European stock markets, influenced by U.S. policies, experienced mixed gains and losses.

05/21 14:50

During the U.S. stock market rebound, hedge funds' short selling reaches a ten-year high, while retail investors break records by buying the dip in a contrarian move.

During the recent rebound in the US stock market, hedge funds have been aggressively shorting, with the COT report indicating cumulative short positions amounting to $25 billion, hitting a ten-year high. Meanwhile, retail investors, unfazed by market uncertainty, continue buying the dips, with single-day net purchases reaching a new all-time high. This highlights a significant split in market sentiment, with institutions remaining skeptical of the rebound while retail investors view it as a buying opportunity.

05/21 06:18

The U.S. stock market faces multiple risks: rising debt levels and financial stress dampen optimism.

The S&P 500 Index is approaching a technical bull run, but market optimism is hiding several risks, including rising corporate and government debt, a weakening U.S. dollar, and pressures facing the banking and life insurance industries. After Moody's downgraded the U.S. credit rating, the 20-year Treasury bond yield is approaching 5%, challenging the stability of U.S. stocks. This article analyzes these sources of risk, uncovering hidden crises.

05/20 13:47

Jim Cramer, a CNBC personality, comments on the 10 biggest stock market events of May 20, 2025, and five key things investors should know before Tuesday's market opens.

On May 20, 2025, investors are faced with corporate earnings reports, policy reviews, and market dynamics. CNBC host Jim Cramer outlined the top ten stock market events, including Home Depot's earnings report boosting its stock price, AMD's sale of its server business, and MongoDB's downgrade. Meanwhile, the top five market headlines before Tuesday's opening highlight macroeconomic and corporate developments, such as comments from Federal Reserve officials, rising mortgage rates, and retailers' strategies regarding tariffs. These events impact market sentiment and investment strategies.

05/20 10:51

Moody's downgrade leads to a drop in U.S. stock futures: Dow Jones at 34,800 points, S&P 500 at 4,960 points, Nasdaq 100 at 21,440 points

On May 20, 2025, Moody's downgraded the U.S. sovereign credit rating from Aaa to Aa1, leading to a drop in the futures of the three major U.S. stock indices. Dow Jones Industrial Average futures stood at 42,800 points, S&P 500 futures were approximately 5,960 points, and Nasdaq 100 futures were approximately 21,440 points. Concerns over the U.S. fiscal deficit and debt sustainability have intensified, putting pressure on the stock, bond, and foreign exchange markets simultaneously. Despite the recent strong performance of the S&P 500 spot index, the weakness in the futures market reflects investors' cautious outlook on future trends.

05/20 04:48

Retail investors pour into Tesla, Palantir, and Bitcoin ETF: Record buying helps stabilize the US stock market, mitigating the effects of Moody's downgrade.

After Moody's downgraded the U.S. sovereign credit rating, retail investors sparked a record-breaking buying spree on May 19, with a net purchase of $4.1 billion in U.S. stocks, reaching a new all-time high. Tesla, Palantir, and Bitcoin ETF were the primary targets for capital inflow. Despite the S&P 500 index dropping more than 1% in early trading, it recovered due to retail buying, closing up 0.09%. Wall Street analysts recommend that investors see market pullbacks as opportunities to increase their positions.

Hedge Funds Increase Short Positions, Amount Reaches Ten-Year High

According to the COT report released by the U.S. Commodity Futures Trading Commission (CFTC), there was a large-scale shorting activity in the market during the week from May 6 to 13, 2025, with a total amount of $11.1 billion, far exceeding the $4.2 billion in long positions opened during the same period. The overall net long positions thus decreased by $6.9 billion. Goldman Sachs trader Robert Quinn pointed out that hedge funds were the main force behind this wave of shorting, with a net selling amount of $7.3 billion, including new short positions amounting to $9.4 billion.

This trend is not a short-term phenomenon. According to the statistics of the latest three COT reports, the cumulative shorting amount by hedge funds has reached $25 billion, the largest scale in at least the past ten years. The proportion of hedge fund short positions in total open contracts has also risen to 41%, the highest level since February 2021.

Goldman Sachs analysts further noted that although some of these short positions may be for hedging other long positions in arbitrage operations, such a large scale of short positions still reflects hedge funds' high skepticism about the current rebound in U.S. stocks.

Retail Investors Buy the Dip, Purchase Amount Sets Record

In stark contrast to the cautious or even pessimistic attitude of hedge funds, retail investors have shown a strong willingness to buy after the recent market decline. According to reports, after President Trump announced a 90-day tariff suspension, U.S. stocks experienced a V-shaped rebound, and retail investors took the opportunity to enter the market in large numbers. On just one Monday this month, the net purchase amount by retail investors reached $5.4 billion, setting a single-day historical high.

According to data from JPMorgan, retail investors accounted for 36% of U.S. stock trading volume at the end of April, the highest level in history. Bank of America also pointed out that retail investors have been net buyers of U.S. stocks for 22 consecutive weeks, the longest continuous buying record since 2008.

These retail investors are mostly not constrained by institutional models and client pressures, instead viewing market panic as an opportunity to "buy cheap." As Dave Mazza of Roundhill Investments said, "In a market dominated by fear, these small and steady buyers are winning."

Market Sentiment Divergence Intensifies

Despite the Nasdaq index rising 7.1% from May 6 to 13, leading the S&P 500 index's 5.0% and the E-mini Russell 2000 index's 6.0%, hedge funds significantly increased their short positions during this period, indicating institutional investors' skepticism about the sustainability of the rebound.

According to Goldman Sachs data, hedge funds not only increased short positions in stock index futures but also conducted large-scale short operations on ETFs and individual stocks. Second-quarter ETF short positions reached $218 billion, and single-stock short positions were even higher at $948 billion. The short ratio in defensive sectors such as consumer staples, utilities, and healthcare has entered historical high ranges.

Additionally, according to Benzinga reports, the short position of the SPDR S&P Regional Banking ETF (KRE) has surged by 50 percentage points since mid-February, reaching 96% of the outstanding shares; the SPDR S&P Biotech ETF (XBI) and iShares Russell 2000 ETF (IWM) also reached short ratios of 111% and 33%, respectively.

Divergence in Capital Flows Between Retail and Institutional Investors

The divergence in capital flows between retail investors and hedge funds reflects the high uncertainty about future market trends. According to observations by the Dunham Fund, this is one of the few times retail investors have bought against the trend during market panic and achieved short-term victories. The S&P 500 index has rebounded 23% since April, with 14% of the gains occurring in just 17 trading days.

However, this "buying fear" strategy also carries risks. As prices rise, retail investors not only continue to buy but also "double down" at higher prices, and this behavior of "averaging up" may face greater losses in future market corrections.

CEO and Market Confidence Divergence

Notably, some recent statements by company CEOs also align with the conservative stance of hedge funds. According to reports, the CEO confidence index has shown a clear divergence from the U.S. stock market trend, which is relatively rare in history. Typically, CEO confidence correlates positively with stock market performance, but the current divergence may reflect corporate concerns about economic prospects.

Moreover, although recent "hard data" such as employment and wage growth remain resilient, "soft data" like the University of Michigan consumer confidence index shows a collapse in confidence and a surge in inflation expectations, further exacerbating market uncertainty.

References

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