Without the giant tech stocks, the US stock market may be vulnerable.
Over the past decade, Wall Street has never been as bearish on US stocks as it is now.
According to data from the Commodity Futures Trading Commission compiled by Bespoke Investment Group, hedge funds and other speculative investors have heavily bet on the S&P 500 index falling, with the most pessimistic position since 2007, measured as a percentage of open interest in the futures market.
Strategists say the divergence in positions reflects the fragility of the stock market rebound in 2023.
According to data from the S&P Dow Jones Indices, as of the end of May, the S&P 500 index has risen 12% this year, but without the contribution of seven tech giants, the index would have shown negative growth. Therefore, even if one or two of these giants' stock prices collapse, the S&P 500 index is likely to experience a significant pullback.
In response, Bespoke analyst Jake Gordon said, "Investors will certainly be cautious no matter what the market conditions are." Of course, such a large-scale bearish position may be a contrarian indicator, he said. "When sentiment reaches extreme levels of bearishness or bullishness, the market will eventually move in the opposite direction."
According to data from technology and data analysis company S3 Partners, short positions on the S&P 500 index have steadily climbed to $487 billion, but are still below the peak of $558 billion in November 2021.
Tech stocks are another story.
According to Bespoke data, investors are preparing for a continued rebound in the NASDAQ-100, which represents tech stocks, and bullish bets in recent weeks have approached their highest levels since the end of last year.
Since ChatGPT became popular, the AI craze has swept the world, and large tech stocks have surged. So far this year, AI computing giant Nvidia has skyrocketed 175%, while Meta and Tesla's stock prices have doubled, and Microsoft, which hit OpenAI, has also surged 40%.
The collective outbreak of large tech stocks has caused heavy losses for short sellers.
Data from S3 Partners shows that last month, investors increased their short positions on Tesla by $3.57 billion, on Nvidia by $2.5 billion, and on Meta by $7.26 billion. However, all three stocks rose in May, causing short sellers to lose more than $7 billion. S3 Partners predicted that "if you short these tech stocks in May, it will be very bad," said Ihor Dusaniwsky, Managing Director of Predictive Analytics.