Wall Street might be celebrating new highs, but short sellers are feeling the pinch. The S&P 500 has hit 25 new records this year, climbing ~13%, which has caught the attention of analysts, day traders, and meme stock enthusiasts. But for short sellers — investors betting against stock price increases — it’s a tough market that’s unforgiving to pessimism.  Renowned short sellers like Jim Chanos are retreating and rethinking strategies.

• According to Goldman Sachs, the median short interest in the S&P 500 has dropped to 1.7% in 2024, its lowest in almost twenty years.
• Investments in short-biased funds have decreased from $7.8B in 2008 to $4.6B today — with the number of constituents in the short-bias hedge fund index from Hedge Fund Research reducing by 74% during that period.

No respite: The decline in short-selling not only stems from poor returns but also tighter regulations — with the SEC keeping a close eye on short-selling practices. That’s why hedge funds now prefer to make short bets against indexes through ETFs and futures rather than individual stocks. However, there are signs of a revival in short selling in the US, with short interest increasing by $76B this year — half of which comes from new short selling.