Investor confidence in certain major companies has propelled markets higher, but there are also those betting against big-name stocks through short selling amid continued uncertainty.
While markets broadly rose following the US election, there were a particular group of stocks that rallied in what has been dubbed the “Trump trade”, around expectations as to the policies that the Republican president-elect could look to implement after he returns to the White House in January.
However, not all investors were reaping the benefits, as data from S3 Partners showed that short-sellers had lost nearly $8bn by the Monday after the election, according to Business Insider.
Unlike the traditional way of investing in markets by buying shares with the goal of selling them at a higher price, also known as going “long”, short selling aims to make a profit on the declining price of the stock. An investor does this by borrowing stock from a broker and then selling them. The hope is that the share price will then fall so that the investor can by them back at a lower price and return them back to the broker, profiting from the difference.
And while long investors appear to be confident in their market winners, data indicates that short sellers also have strong conviction in their bets against major companies.
Here are the major companies that have become popular shorts.
S3 Partners’ analysis showed that the largest sector position for S&P 500 stocks was in information technology. The research showed that $4.2bn new shorts in this sector were opened over the last month, while $3.6bn shorts were closed, which worked out to a $582m net increase.
Chipmaking conglomerate Broadcom (AVGO) accounted for $1.8bn of new shorts, while fellow chip stock Nvidia (NVDA) was responsible for $1.05bn of these positions.
The demand for chips as a key component in enabling the AI boom has driven these shares higher, with Nvidia recently overtaking Apple (AAPL) to become the world’s most valuable company, at a market valuation of $3.6tn.
At the same time, there have been questions as to whether these companies can maintain the same rate of growth.
Shares in Broadcom fell in September after the guided to revenues of $14bn in the fourth quarter, which was below the $14.3bn Wall Street was expecting.
And Nvidia’s highly anticipated third-quarter results release on Wednesday appeared to disappoint investors, in terms of its revenue guidance and a decline in gross margins. In fact, despite its consistent outperformance on key metrics, Nvidia has experienced gradual decline growth margins quarter-on-quarter.
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The discretionary sector logged a $528m increase in net short positions, led by Tesla at $660m.
Tesla shares were on the rise prior to the post-election rally, with the stock surging on the back of third quarter beats on adjusted earnings per share and higher gross margins.
However, revenue was lower than market estimates and Tesla said it only expected vehicle deliveries to achieve “slight growth” in 2024. And Tesla’s robotaxi event earlier in October left investors wanting more details on the company’s new product offerings and timeframes.
S3 Partners’ analysis also showed that there was a $513m increase in net short positions in the industrials sector, which included positions of $200m in ride-hailing company Uber (UBER).
Following its recent results, Uber’s shares slid after its all-important gross bookings figure, which tracks total revenue before fees and deductions such as driver pay, came in below estimates.
S&P healthcare stocks saw nearly $500m in new short positions but just $75m in closings. New positions were spread equally across CVS Health Corp (CVS), Abbott Laboratories (ABT), Bristol-Myers Squibb (BMY), Pfizer (PFE) and Moderna (MRNA), though S3 Partners’ research team said this “may be related to the [US] election”.
They said that despite this significant activity in “all sectors saw negative returns for shorts, led by tech and discretionary losses”.
Meanwhile, French luxury company LVMH (MC.PA) was found to be one of the most crowded short position in the Europe, Middle East and Africa region, according to a monthly report by Hazeltree.
The data and tech firm’s October report, released last week, lists the top shorted stocks across regions based on different factors. This includes a score on “crowdedness”, on a scale of one to 99, which represents percentage of the institutional investors’ supply of a particular stock that is being lent out.
LVMH, which is the parent company of brands including Louis Vuitton and Dior, had a crowdedness score of 99 in October.
The company’s shares slumped after it recently reported a dip in sales for the first nine months of the year, amid an “uncertain economic and geopolitical environment” and the stock is down 22% year-to-date.
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The luxury sector has been struggling as consumers have been reining in spending, with brands particularly impacted by the economic slowdown in China.
Kering (KER.PA), whose umbrella of brands include Yves Saint Laurent and Gucci, was another French luxury company that Hazeltree found to be among the most popular shorts in EMEA.
Shares are down 48% so far this year, with the company having also reported a drop in revenues in its most recent results, as well as warning of lower operating income for the year.
Multinational drinks company Diageo (DGE.L) was another name on Hazeltree’s list, with a crowdedness score of 74.
Diageo, which is listed on the UK’s FTSE 100 (^FTSE), reported a slight decline in overall organic net sales in its 2024 preliminary results at the end of July, with the biggest decline recorded in Latin America and the Caribbean.
It has been flagged as a company that could potentially be negatively impacted by president-elect Donald Trump’s proposed trade tariffs.
In South Asia, one of the most notable shorts of recent years has been Hindenberg Research’s position in India’s Adani Group companies.
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Hindenberg revealed its short position, through US-traded bonds and non-Indian-traded derivative instruments, in January last year. It alleged the conglomerate had engaged in stock manipulation and accounting fraud. Adani Group responded with 413-page report, saying that Hindenberg’s claims were “nothing but a lie”.
On Wednesday, US prosecutors charged Adani Group’s billionaire owner Gautam Adani over an alleged $250m bribery scheme.
Shares in Adani Group companies tumbled, including its flagship firm, Adani Enterprises (ADANIENT.NS), which fell nearly 23%.
In a statement, Adani Group said that the allegations were “baseless”.
Hindenberg’s focus is on investigative research into companies, so it’s a more activist approach to short selling.
However, as the wider data shows, even as many investors pile into the market winners, there are also those that are confident in betting against the big sector leaders to generate better returns.
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