Having been battered and bruised by the broad rally in stocks this year and the meme stock resurgence, bearish investors are holding onto and even increasing their short bets, wagering even more money that stocks like GameStop and AMC will sink along with the broader market.

Background: Hedge funds got burned on short positions earlier this year as meme stocks jumped by hundreds of percentage points in just weeks, and then scrambled to reduce risk and square their positions.

• That precipitated hedge funds’ largest week of de-leveraging since February 2009, according to data from Goldman Sachs’ prime brokerage unit, CNBC noted.

Yes, but: "No one is capitulating," Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, tells Axios.

• "Hedge funds that are in these big mover names, they tell me: 'I’m not getting out of this trade. I just had to cut my shares because the stock price went up so much.'"
• "'I’m taking losses, but I think this f---er’s going back down to 10 bucks. I’m going to win eventually; it’s just a matter of me having the backbone to stay with the trade.'"

Case in point: Short sellers increased their bearish bets against companies that have gone public through special purpose acquisition vehicles (SPACs) to more than triple their value at the start of the year, rising to about $2.7 billion from $724 million, WSJ reported Sunday, citing S3 Partners' data.

• But it's not just SPACs that these short sellers — mainly hedge funds — are targeting. They're increasingly putting down bets that broader indexes, like the S&P 500, the Nasdaq and the Russell 3000 will decline.

By the numbers: Short bets against the S&P rose 10.2% from the end of 2020 to March 15, touching a recent high of $521.1 billion, S3's data show.

• Short interest as a percentage of the S&P's total float declined by 7.8% during that time.
• "Traders are betting one $100 chip on the short side instead of five $10 dollar chips," Dusaniwsky says.

The bottom line: Having amassed searing losses and public embarrassment and facing a euphoric bull market, Wall Street's so-called smart money continues to pile into short bets and has shown no sign of stopping or even slowing down.

As U.S. equity indexes again scale record highs, short interest as a percentage of overall float in the S&P 500 "may have already hit rock-bottom," S&P Global reports.

• However, that's largely because stock prices are rising and hedge funds and other short sellers are having to reduce the number of shares held. But they are keeping the same amount of money in short positions, Dusaniwsky of S3 Partners argues.

How it works: When GameStop traded at $20 a share, a $10,000 short position would have meant holding 500 shares.

• But as GameStop's stock rises to $200 a share, a fund manager needs to hold just 50 shares to retain that $10,000 short position.

Keep it 💯: "I think if short-sellers haven't been shaken out by a decade-long rally, they're not going to give up now," Marshall Gittler, head of investment research at BDSwiss, tells S&P Global.

• "With many of the indices at record highs, someone somewhere has got to be taking aim at something."

The coronavirus pandemic, a semiconductor shortage and severe winter weather will cause Honda and Toyota to stop production at a number of plants in North America. (Bloomberg)

The pandemic inflicted deeper economic scars on Europe than the U.S and their responses to the crisis mean the two economies are about to drift further apart. (FT)

Goldman Sachs, Citigroup, JPMorgan, Bank of America and Morgan Stanley had $77.8 billion in exposure to Chinese assets last year, up 10% from 2019. (Bloomberg)

Uber will reclassify more than 70,000 drivers across the U.K. as workers who will receive benefits including a minimum wage, vacation pay and access to pension plans, the company announced. (Axios)

The FTC is looking to take a harder line on drug company mergers, announcing plans Tuesday to overhaul its process for reviewing deals that could harm competition. (WSJ)

Inflation is the number one risk for the market, according to a monthly survey of global asset managers commissioned by Bank of America, displacing COVID-19 for the first time since February 2020.

Details: Both inflation (37% of respondents) and the risk of a market taper tantrum (35%) beat out the pandemic as the top risk for investors.

• COVID-19 and the vaccine rollout dropped from being seen as the biggest risk by nearly 30% of respondents in February to less than 15% in March.

One level deeper: A net 93% of investors in the survey expect inflation to rise in the next 12 months, up 7 percentage points from last month and the highest reading in the history of the survey, which dates back to at least 1995.

• 53% of fund managers expect above-trend inflation along with above-trend growth over the next year, the first time that has happened since March 2011 and the third time in the history of the survey.

By the numbers: That matches up with sky-rocketing market gauges of inflation expectations that have jumped to yearslong highs in recent days.

• The 5-year breakeven inflation rate jumped to 2.59% on Tuesday, the highest since July 2008.
• The 10-year breakeven rate hit 2.30%, the highest since January 2014.

Of note: The survey also found fund managers were incredibly bullish, with 91% of respondents expecting a stronger economy, the highest result on record.

The total number of U.S. mortgage applications declined again for the week ending March 12, the fifth time in six weeks that overall mortgage applications have fallen and the seventh in the past nine, according to data from the Mortgage Bankers Association.

Why it matters: The decline shows that rising U.S. interest rates are having a significant impact on the mortgage market, weakening demand, especially for refinance applications.

Yes, but: MBA's index of purchase applications has risen in each of the past three weeks, as home buyers have started to make up a greater share of overall mortgage applications.

• The refinance share of mortgage activity decreased to 62.9% of total applications from 64.5% the previous week, according to MBA's data.
• That suggests more new buyers are entering the market with fewer current homeowners resetting their rates.

Watch this space: "The 30-year fixed rate increased to its highest level since June 2020, and all other surveyed rates were either flat or increased," Joel Kan, MBA’s associate vice president of economic and industry forecasting, said in a release.

• "After reaching a recent high in the last week of January, the refinance index has since fallen 26 percent to its lowest level since September 2020. Rates have jumped 36 basis points since the end of January."

The big picture: Even with rising rates, MBA is expecting mortgage purchase originations in 2021 to rise 11% to a record $1.57 trillion, a spokesperson tells Axios.

• That would eclipse the previous all-time high of $1.51 trillion in 2005.

What's next: February U.S. housing starts and building permits data will be released today at 8:30am ET.