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A terrible year for most investors in the stock market was one to celebrate for traders who bet successfully on its decline.
US short sellers were up 31 percent in 2022, sitting on US$300 billion in mark-to-market profits on an average short interest of US$973 billion, research from data analytics firm S3 Partners showed Wednesday.
These winnings came as equity markets closed out their worst run since the Global Financial Crisis more than a decade ago.
The S&P 500 tumbled 19,4 percent in 2022, the Dow fell 9 percent, and the Nasdaq Composite dropped 33 percent. For the first time since 2000, the Nasdaq fell during each quarter of the year.
The major indexes also snapped a three-year winning streak in 2022, battered by aggressive monetary tightening by the Federal Reserve to tame stubborn inflation and Russia’s war in Ukraine.
Short-side returns outperformed the long returns of the S&P 500 and broader Russell 3 000, according to S3.
But shorts slightly underperformed the technology-heavy Nasdaq Composite as it weathered the brunt of last year’s selling pressures, meaning market gains realised by investors betting against the Nasdaq would’ve been more than wiped out by the index’s decline.
“Short sellers still needed to be good stock pickers in order to maximise their returns,” S3’s Ihor Dusaniwsky said in a note. “Even on a more macro level, picking which sectors to short produced wildly divergent returns.”
Communications Services and Consumer Discretionary were the most profitable sectors for short-sellers, earning traders an average return of 50 percent.
The two components of the S&P 500 led declines among the other nine sectors, logging losses of 37,7 percent and 36,2 percent, respectively, in 2022.
Meanwhile, the average short-seller in Energy was down 28 percent for the year as the sector notched a 64,6 percent gain, the only one of two with positive returns along with utilities.
Big names like Facebook parent Meta, Alphabet, Netflix, and AMC Entertainment were among the most profitable shorts in the communications services sector.
In 2022, for long investors, Meta shed 64 percent, Alphabet fell 39 percent, Netflix lost 51 percent, and AMC dropped 86 percent, respectively.
Short-sellers, however, made US$5,5 billion in mark-to-market profits on Meta’s drop, US$2,7 billion on Alphabet’s plunge, US$2,3 billion on Netflix’s decline and US$2,1 billion on AMC’s plunge.
Within Consumer Discretionary, headliners like Tesla, Carvana, Amazon and Rivian Automotive were money makers for short sellers.
Tesla closed out its worst year on record in 2022, shedding 65 percent or about US$700 billion in market value over concerns around supply and demand and CEO Elon Musk’s management of Twitter.
Carvana had an epic drop of nearly 100 percent and Amazon and Rivian each fell 50 percent and 81 percent in 2022.
In 2022, Tesla was the most profitable and largest average US short, earning traders who bet against the company US$15,8 billion in mark-to-market profits.
CEO Elon Musk’s take-private deal to buy Twitter, on the contrary, clobbered short-sellers with a 37 percent mark-to-market loss, S3 Partners said. —Yahoo Finance.
Online Reporter