Institutional investors are quietly ramping up bearish bets, signaling a level of caution that market watchers say hasn’t been seen in years.
What Happened: On Wednesday, popular investment newsletter The Kobeissi Letter posted on X, showing the substantial rise in the short interest of a median S&P 500 stock, which is now at 2.3%, the highest in 7 years.
The post notes that the short interest as a percentage of shares outstanding has risen 35% year-to-date, which it says is comparable with the move seen at the beginning of the 2008 financial crisis.
While the recent surge begins from a much lower base, the strength of the trend mirrors the defensive positioning seen just before the last major market collapse.
This also marks the first time short interest has breached its long-term historical average since the retail-fueled short squeeze frenzy in 2021, according to Goldman Sachs.
According to the post, hedge fund short interest on Nasdaq-listed stocks now accounts for 41% of total open interest, which is once again the highest level since February 2021.
The post concludes by saying that “institutional investors are betting on a stock market decline.”
Why It Matters: On Wednesday, investor Jeremy Grantham warned that the stock market could plunge as much as 50%, pointing to distortions fueled by pandemic-era liquidity and the AI-boom in a handful of “Mag 7” stocks as having skewed market dynamics.
“The market could easily go down by 50% and be well within its historical boundary. That would not be a colossal low,” Grantham said.
JPMorgan Chase & Co. JPM CEO Jamie Dimon warned early this week that S&P 500 earnings growth could drop from 12% to 0%.
He also said that current asset prices were “kind of high,” while credit spreads remain “kind of low.”
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