Short positions in US stocks soar to historic highs, the "wall of fear" in the bull market continues to rise.

Although the S&P 500 index has risen by 18% since late March, the short positions in the US stock market have surged to a new historic high, reflecting concerns about whether this upward trend can be sustained. Data from S3 Partners shows that the short positions in the S&P 500 index components are close to 3.79% of the free float shares, the highest level on record for the company since 2010. The short ratio of the Russell 3000 index components has also climbed to 6.3%, setting a new historic high. At the same time, S3 Partners data shows that the total short positions in the US and Canadian stock markets have increased to $2.13 trillion, also reaching a historic peak since 2010. The median short interest as a percentage of market capitalization for S&P 500 component stocks has risen to 3%, the highest level since the end of 2011. The multidimensional records of short positions: from market indices to individual stocks The expansion of short positions is comprehensive. S3 Partners data shows that short positions in US stock markets surpassed $2.13 trillion in May, reaching the highest level since the organization began tracking in 2010. Statistics from Goldman Sachs Group, Inc. show that the median short interest as a percentage of market capitalization for S&P 500 index component stocks has risen to 3%, the highest level since 2011. Taking a broader view, data from Global Markets Investor shows that the median short interest as a percentage of market cap for S&P 500 index component stocks is around 3.7%, reaching a new high in 11 years; the Nasdaq 100 index short interest is around 2.7%, reaching a new high in 6 years; and the Russell 2000 index short interest is close to 5.0%. Data compiled by Reynolds Strategy shows that short positions in NYSE-listed stocks have continued to rise since February, reaching 9% of the float by late June, a new historic high - in comparison, during the global financial crisis this ratio was only 5%, and during the COVID-19 pandemic it was around 6%. The company's chief market strategist, Brian Reynolds, describes the recent short positions as "vertically rising". The concentration of short positions at the individual stock level is even more stunning. S3 Partners data shows that at least 16 stocks have short interest exceeding 20% of the float. Among them, the short interest in SpaceX (SPCX.US) has surged from $4.5 billion on June 15th to $25 billion, representing approximately 29% of the publicly available float. Ihor Dusaniwsky, Managing Director at S3 Partners, commented: "Short selling has increased, and the range of stocks being shorted has expanded." Major battlegrounds for short positions: AI and semiconductor sectors become hotspots The concentration of short positions clearly points towards the AI and semiconductor sectors. S3 Partners data shows that the largest short positions (in USD) include the "big seven tech giants" and chip manufacturers, such as Micron Technology, Inc. (MU.US) and Broadcom Inc. (AVGO.US). The prototype of the movie "The Big Short", Michael Burry, recently revealed a new round of bearish bets, shorting stocks such as NVIDIA Corporation (NVDA.US), Applied Materials (AMAT.US), Tesla, Inc. (TSLA.US), Carter's Incorporated (CAT.US), and iShares Semiconductor ETF. Burry explicitly stated that he has built short positions around the AI and semiconductor sectors. Short positions in this area have not been without gains. According to data from Bespoke Investment Group, stocks with the highest short interest in the Russell 3000 index - such as Hertz Global Holdings Inc (HTZ.US) and Eos Energy (EOSE.US) - have fallen by an average of 15% this year, while all other stocks in the index have risen by nearly 21%. Hertz Global Holdings Inc has seen a year-to-date decline of 65%, with about 79% of its stock being shorted, resulting in substantial returns for the short sellers. SpaceX has been a "cash cow" for the short sellers. Since its IPO in June, SpaceX's stock price has fallen below the $135 offering price, resulting in a paper profit of nearly $5 billion for short sellers. Ihor Dusaniwsky, Managing Director at S3 Partners, revealed that SpaceX's short interest was among the highest among companies listed for less than a month. Multiple risks driving short positions The core concern is the investment return of AI. Over the past 8 weeks, hedge funds have been selling off tech stocks at an unprecedented pace, setting a new record for cumulative selling. Last week, US tech stocks experienced intense selling pressure with the Nasdaq dropping by 2.9% and the Philadelphia Semiconductor Index falling by nearly 10%. Morgan Stanley's US tech momentum factor has been retreating for 17 trading days, falling by 40% from its peak, marking the fastest decline in history. Goldman Sachs Group, Inc. has characterized the retreat of the Philadelphia Semiconductor Index by more than 20% from its June high and into a technical bear market as "one of the largest momentum strategy sell-offs on record." The main reason is not deteriorating fundamentals, but rather large-scale unwinding by hedge funds and mutual funds in a popular pair trade over the past year of being long semiconductors and short massively sized cloud computing companies. Goldman Sachs Group, Inc. partner Mark Wilson pointed out that the root cause of this sell-off lies in crowded positions and concentrated leverage. Political risk from GEO Group Inc should not be overlooked. The US has carried out multiple airstrikes against Iran, threatening maritime security in the Strait of Hormuz. Continued attacks between the US and Iran have pushed WTI crude oil prices back above $80 per barrel. The conflict involving GEO Group Inc has pushed up oil prices and inflation expectations, exerting pressure on overall risk assets. Analysts point out that the escalation in the Middle East, rising oil prices, and the upcoming Federal Reserve interest rate meeting will jointly determine the future price movements of assets. The uncertainty of earnings season is the most direct short-term catalyst. This week, Alphabet and Tesla, Inc. will be the first to report quarterly earnings. Some analysts have warned that any signal of a reduction in AI investment budget by Alphabet Inc. Class C could severely impact AI trades. Joseph Saluzzi, partner at Themis Trading, said: "The increase in short interest indicates that investors are worried." Bullish vs. bearish: two forces at odds The surge in short positions has not triggered a market collapse. Since the S&P 500 index first hit 7,500 points on May 14, it has been oscillating around that level. This resilience of "refusing to fall" is due to the simultaneous presence of bullish forces. Reynolds pointed out that investors' buying behavior is likely offsetting the heightened bearish sentiment - it is the interaction of these two opposing forces that has kept the stock market in a consolidation pattern over the past month, suppressing speculative activity that could pave the way for a rebound. In his report, he stated: "We still believe that retail investors will continue to push stocks to new highs and in any decline, stock buybacks will accelerate, helping stocks bounce back from lows." Data from S3 Partners shows that investors have invested about twice as much in long positions as they have in short positions. This means that the current market is in a fragile state of equilibrium: once the bullish forces weaken or the bearish forces accumulate further, the balance could be broken at any moment. Meanwhile, hedge funds are taking the opposite approach. Data from Goldman Sachs Group, Inc. shows that hedge funds have covered their short positions in US stocks at the fastest pace in three months. The complexity of this long-short game indicates that the market is not simply "bullish" or "bearish", but rather searching for direction in a highly uncertain environment. The information technology sector has become the sector with the largest net purchases, as fund managers focus on covering their semiconductor positions. Earnings season: Judgment day or carnival for the shorts? This week's earnings reports from tech giants will be a crucial variable in determining the fate of short positions. According to FactSet data, Mag 7 as a whole is expected to achieve a 31.1% year-over-year increase in second-quarter profits, higher than the 22.8% increase for the rest of the S&P 500 components. Profit growth expectations are strong - but the problem lies in the fact that the market may have already priced in the good news. Michael Hartnett, Chief Investment Strategist at Bank of America Corp, warned that the bank's bull/bear indicator has risen to a historic extreme of 9.6, signaling an "extreme position" in the market. A quantitative report from Citigroup Group shows that the Nasdaq index has only about 1% downside left before triggering systematic selling by CTA. Goldman Sachs Group, Inc. believes that the recent tech stock plunge is due to crowded positions and concentrated leverage, rather than deteriorating fundamentals. The unwinding process is "nearing its end", but the short-term lacks reversal catalysts, with valuations still high and market structural risks remaining. JPMorgan Chase is more cautious, pointing out that after stock long-short fund leverage ratios hit their highest level since 2017 in June and have since declined in July, this adjustment is just part of a broader deleveraging process. The bank expects that tech stocks will face pressure for several months. The "wall of fear" in a bull market The S&P 500 index short ratio of 3.79%, the Russell 3000 index of 6.3%, and the overall NYSE of 9% - these numbers together paint an unprecedented bearish picture. Short sellers have been at a disadvantage throughout the almost four-year bull market, but they have not only not retreated, but have continued to increase their positions. The essence of this long-short standoff lies in the fundamental disagreement over the AI investment cycle. Bulls believe that AI will reshape the global economy just as the internet did, and that massive capital spending will eventually bring excess returns; bears, however, are concerned that AI infrastructure development has entered a "burning money mode" and the uncertainty of capital returns is accumulating. Earnings season will provide the latest evidence. If tech giants deliver better-than-expected results and raise AI investment guidance, shorts could face massive covering - Goldman Sachs Group, Inc. previously indicated that the $2.13 trillion short position itself could be the fuel for driving the market higher. If earnings disappoint or signal a reduction in AI investment, the shorts' bets could pay off handsomely. Saluzzi said, "Earnings season and the political situation with GEO Group Inc will be important factors affecting the market for the rest of the month." Above the "powder keg" of $2.13 trillion in short positions, any break in either direction could trigger violent one-way movements - whether it's a short squeeze rally or panic selling.