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Screenshot via CNBC

Short positions in U.S. equities have declined significantly since "meme stocks" like GameStop exploded higher earlier this year, S&P Global Market Intelligence data show.

By the numbers: At the end of January, the percentage of outstanding shares of S&P 500 companies held by short sellers averaged 3.1%, down from 4.1% a year ago.

  • Short interest in the most shorted of the S&P 500's 11 sectors in 2020, consumer discretionary, fell to 4.7% at the end of January, down from 5.4% in the middle of the month and from 6.7% at the end of January 2020.

What they're saying: "I think a lot of hedge funds are stepping back until the retail euphoria calms down," Pauline Bell, an equity analyst at CFRA Research, told S&P Global Market Intelligence.

  • "Hedge funds are on the lookout. They don't want to get burned."

Yes, but: The number of short positions investors are taking is in decline, but the amount of money investors are putting in short interest positions appears to be increasing, according to an analysis by Ihor Dusaniwsky, managing director at S3 Partners.

  • Short interest in the Russell 3000 index as a percentage of the float fell from 7.2% as of Dec. 29, 2020, to 5.8% as of Feb. 16, 2021, but the amount of money in short interest positions rose by about 4.1% over the same timeframe, Dusaniwsky's analysis found.

How it works: "If an observer was just looking at the number of chips you are betting they would surmise that you were reducing your bets, but an observer looking at the dollar value of your bets would understand that the size of your bet was increasing," Dusaniwsky said.

Go deeper

Felix Salmon, author of Capital
Feb 18, 2021 - Economy & Business

Explaining GameStop hearing terms: Short-selling

Illustration: Aïda Amer/Axios

The reason that GameStop stock rose so sharply last month was, paradoxically, because so many people had bet that it was going down.

Why it matters: That kind of bet — known as short-selling — is often considered distasteful, or worse.

Reddit user behind GameStop saga releases opening statement ahead of hearing

Wall Street protesters. Photo: Tayfun Coskun/Anadolu Agency via Getty Images

Keith Patrick Gill, known on YouTube and Twitter as Roaring Kitty, released his opening statement ahead of testimony before the House Financial Services Committee on Wednesday about his role in the surge of GameStop's stock price.

The big picture: Gill will join the CEOs of Reddit, Robinhood, Citadel and Melvin Capital at Wednesday's hearing. The committee plans to "examine the recent activity around GameStop (GME) stock and other impacted stocks with a focus on short selling, online trading platforms, gamification and their systemic impact on our capital markets and retail investors," per a statement by Rep. Maxine Waters (D-Calif.), chair of the committee.

Congress divided over who's to blame for Reddit trading phenomenon

Photos: Getty Images, company websites, Keith Gill courtesy of YouTube; Graphic: Andrew Witherspoon/Axios

There's little consensus about what went wrong, if anything, during the trading mania that drove a group of "meme stocks" to meteoric heights — and those tensions could animate today's GameStop-centered Congressional hearing.

Why it matters: What went wrong and who's to blame — short-sellers, Robinhood, Reddit daytraders, etc. — depends on whom you ask. Any of the witnesses set to appear could be targeted, and there's not much clarity about what direction Congress might go in response.