Short sellers have taken a big hit this month, losing $2.5 billion in July alone. These losses came from bets against the 50 most heavily shorted U.S. stocks, including Kohl’s Corp, a favorite among meme-stock traders. According to data from S3 Partners, these losses are about four times bigger than usual for short positions.
The reason? Retail traders are once again driving up prices in heavily shorted stocks. This has led to major gains for long investors. According to Bespoke Investment Group, July has been a “banner month” for investors betting that stock prices will go up, but a “brutal” month for short sellers, who bet on prices falling.
However, some analysts are cautious. They warn that the current risk-on mood in the market may not last. Key events such as the Federal Reserve’s policy decision, earnings reports from the ‘Magnificent Seven’ tech giants, and the U.S. jobs report due on Friday could all shake investor confidence.
Despite this, market strategists say that institutional investors are already buying cheap hedges to protect themselves from future losses. At the same time, retail buying pressure and hedge fund activity on both sides of the trade could keep these stocks volatile and the rally alive.
In short, while some investors are making big profits, short sellers are feeling the squeeze—and the market could get even more unpredictable in the days ahead.
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