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Illustration: Aïda Amer/Axios

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 deleveraging 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 on 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.

Data: S3 Partners; Chart: Axios Visuals

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 real: "I think if short-sellers haven't been shaken out by a decadelong 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."

Go deeper

Updated 2 hours ago - Politics & Policy

Omicron dashboard

Illustration: Brendan Lynch/Axios

  1. Health: Pfizer and Moderna boosters overwhelmingly prevent Omicron hospitalizations, CDC finds — Omicron pushes COVID deaths toward 2,000 per day — The pandemic-proof health care giant.
  2. Vaccines: The case for Operation Warp Speed 2.0 — Starbucks drops worker vaccine or test requirement after SCOTUS ruling — Kids' COVID vaccination rates are particularly low in rural America.
  3. Politics: Biden concedes U.S. should have done more testing — Arizona says it "will not be intimidated" by Biden on anti-mask school policies — Federal judge blocks Biden's vaccine mandate for federal workers.
  4. World: American Airlines flight to London forced to turn around over mask dispute — WHO: COVID health emergency could end this year — Greece imposes vaccine mandate for people 60 and older — Austria approves COVID vaccine mandate for adults.
  5. Variant tracker

Arizona governor sues Biden administration over COVID funds tied to mandates

A teacher prepares a hallway barrier to help students maintain social distancing at John B. Wright Elementary School in Tucson, Arizona, on Aug. 14, 2020. Photo: Cheney Orr/Bloomberg via Getty Images

Arizona Gov. Doug Ducey (R) filed a lawsuit Friday against the Biden administration for ordering the state to stop allocating federal COVID relief funds to schools that don't comply with public health recommendations such as masking, the Arizona Republic reports.

Why it matters: The Treasury Department said last week that the state would have to pay back the money if Ducey does not redesignate the $173 million programs to ensure they don't "undermine efforts to stop the spread of COVID-19."

Federal judge blocks Biden's vaccine mandate for federal workers

President Biden speaking from Eisenhower Executive Office Building on Jan. 21. Photo: Yuri Gripas/Abaca/Bloomberg via Getty Images

A federal judge in Texas blocked the Biden administration from enforcing its coronavirus vaccine mandate for federal workers on Friday, citing the outcome of last week's Supreme Court ruling that nullified the administration's vaccine-or-test requirement for large employers.

Why it matters: It's a blow to President Biden's efforts to increase the U.S.' vaccination rates, though much of the federal workforce has already been vaccinated against the virus.

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