The $1 tr Short Un­der­ly­ing US Stocks’ Spring Awak­en­ing

The Economic Times - - Companies -

New York: Skep­ti­cism is one thing this rally hasn’t lacked.

Amid its big­gest about-face in nine decades, a funny thing has hap­pened in the US stock mar­ket, where rather than loosen their grip bears have grown ever-more im­pas­sioned. They’ve sent short in­ter­est to an eightyear high and above $1 tril­lion, by one an­a­lyst’s math. Po­si­tion re­ports from the Com­mod­ity Futures Trad­ing Com­mis­sion show mu­tual fund man­agers are more skep­ti­cal now than any time since at least 2010.

In short, dis­be­lief is run­ning ram­pant af­ter $2 tril­lion was re­stored to share val­ues in six months. A cho­rus of Wall Street prog­nos­ti­ca­tors says that’s a big rea­son the rally can keep go­ing. “There’s an enor­mous de­mand com­ing,” said Thomas J. Lee, manag­ing part­ner at Fund­strat Global Ad­vi­sors LLC., in an in­ter­view with Bloomberg TV . “Re­tail in­vestors are about to put a lot of money into the eq­uity mar­kets be­cause they’re trend fol­low­ers and the S&P has had two pos­i­tive quar­ters in a row. Funds can’t keep a tril­lion short po­si­tion, larger than March ’09.”

It started in Au­gust, when bear­ish in­vestors sent bets against US stocks above 4% of avail­able shares for the first time in six years. They haven’t backed off since. By the end of Fe­bru­ary, the ra­tio climbed to 4.4%, the highest since 2008. As of March 15, that level was 4.3%, equiv­a­lent to a short po­si­tion just un­der $1 tril­lion.

Bear­ish­bet­sare­sowidespread they’re skew­ing the mar­ket’s re­sponse to news in fa­vor of ral­lies, ac­cord­ing to a note to clients from JPMor­gan Chase.

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