Short sellers are crushed even when logic seems to be on their side.
Total short interest in the US market surpassed $1 trillion this month, hitting the highest level since April 2022. In recent weeks, they have been extending their bearish bets as the S&P 500 trades at a 14- monthly high climbed. That rally has been tough: Short sellers have suffered about $120 billion in mark-to-market losses this year, including $72 billion in the first half of June.
A problem for short sellers is that it is difficult to time the end of a market mania. Tesla is a great example of this. Its shares have more than doubled in 2023, and compared to other top stocks like Apple, Nvidia, and Microsoft, the company has relatively high short selling interest relative to the shares available.
While predictable earnings prospects are at the heart of most professional investors, right now it’s sexy ideas like artificial intelligence and robotic taxis that are driving Tesla’s earnings, writes Heard on the Street’s Stephen Wilmot.
Distant hopes have long taken precedence over fundamentals in determining the direction of Tesla’s stock price, making it notoriously difficult to forecast, he says. But next month’s second-quarter sales and earnings could draw attention back to how things look in the near future.
US stocks fell on Tuesday, halting a recent rally that had seen indexes soar to their highest levels of the year despite doubts about the health of the global economy. US housing starts in May came in much higher than expected, driven by both single-family and multi-family projects. The Dow Jones Industrial Average fell 0.7%, or about 245 points, leading the major indices lower, while the S&P 500 fell 0.5%.
This analysis comes from the journal’s Heard on the Street team. Subscribe to the free daily afternoon newsletter here.