Hedge Funds Place More Bearish Bets as Storm Clouds Darken

Mixed market currents, unknowns the corporate earnings starting to come out, and the stop-and-go COVID-19 recovery have caused hedge funds to become increasingly bearish. According to the Business Standard, “after more than a year of futility, short sellers just scored their fifth straight week of positive returns, their best run since 2018”.

All of these factors — plus the Fed tapering policy in flux, and now the specter of inflation and supply chain disruptions, have caused more hedge fund managers to short the market.Steve Kolano, chief investment officer at BNY Mellon Investor Solution, explains: “There’s a lot of mixed currents in the market right now…You could see a market pullback if there’s a change in outlook.”

It’s unclear yet if the overall market run up is due for a correction, but given short sellers’ actions in September, the toughest month for the S&P500 since March 2020 — wider difficulties may be piling up. For many hedge fund short sellers, the market disruptionc spell opportunity.

Bulls like Marko Kolanovic, a JP Morgan Chase & Co. strategist sees the worries on skyrocketing prices as misguided, saying the economy is on the path to a sustained recovery, particularly since the Delta variant has slowed.

Kolanovic may have good reason for his optimism, as news broke Friday morning that showed Goldman Sachs’ very strong Q3 earnings, and better than expected retail data from September.

In the big picture, the split between Steve Kolano and Marko Kolanovic represents a broader divide between experts as seen in Investors Intelligence. A survey by the newsletter found that institutional invesors are now evenly split on the market. This week, those being in the bull camp have collapsed to 40.4%, while those being in the bearish camp have surged to 37.1%, a sign that increasing pessimism is entering the discussion.

It increasingly seems that in today’s cloudy markets, the only thing that is certain, is more uncertainty.

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