Hedge Funds Are Shorting Stocks at Near-Record Levels
Goldman Sachs prime brokerage data shows hedge funds leaning bearish at levels rarely seen in five years, yet those same funds are bleeding money daily while a Fed decision and two megacap earnings reports loom over the trade.
Goldman Sachs prime brokerage data first reported on Thursday, October 22, 2026, shows hedge funds have built short positions in stocks to a near five-year high. Major indexes moved in opposite directions that same day.
The S&P 500 fell 93.74 points, or 1.21%, to 7,663.43. The Nasdaq Composite dropped 694 points, or 2.6%, to 26,008.86. The Dow added 11.89 points to 52,867.98, and the Russell 2000 gained 0.1%.
The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) closed at $763.96, down 1.18%. The Invesco QQQ Trust (NASDAQ:QQQ) fell 2.86% to $704.47.
Heavy shorting can mean professionals expect more downside. It also leaves the market full of sellers who will eventually have to buy shares back, and those positions are concentrated in tech stocks.
How Bearish Hedge Funds Have Become
In October, short sales exceeded long purchases across global stocks by about five-to-one. Short leverage in Goldman’s prime book has reached the 99th percentile of its five-year history, “indicating bearish exposure was higher than in almost all of that period.”
Net leverage (longs minus shorts) among fundamental long-short funds is near a three-year low, while gross leverage (longs plus shorts) has risen. That means funds are adding risk on both sides of their books and leaning bearish overall.
Goldman’s Mark Wilson described net equity exposure as historically low amid swings in rates and energy prices. He said higher yields pushed investors to rethink equity risk.
Leaning Short and Still Losing Money
Global fundamental long-short funds lost 2.9% through October 15, “suffering losses every trading day during that stretch.” Asia-focused stock pickers lost 6.8% in the first half of October.
Losses like these are what set up a short squeeze. In a squeeze, rising prices force short sellers to buy back shares, and that buying pushes prices higher still.
Goldman has warned about that risk, but crowded short positions cannot tell you when a rally will start. Some of those shorts also hedge long holdings, so they may stay open as long as the funds keep those holdings. Riding a late-cycle market with this much short interest piled up is its own skill, and we laid out both halves, the staying and the leaving, in a free bubble handbook here.
A Selloff Confined to Megacap Tech
Most stocks rose while tech fell. The Philadelphia Semiconductor Index dropped over 6%, its biggest daily percentage drop since June 23.
Meta Platforms (NASDAQ:META | META Price Prediction) fell 6.98% to $648.85 after its third-quarter report. NVIDIA (NASDAQ:NVDA) lost 4.40% to $212.21, Amazon (NASDAQ:AMZN) fell 4.57% to $250.38, and Microsoft slipped 2.23% to $521.08.
The 10-year Treasury yield fell 19.3 basis points to 4.953%. That was its largest daily drop since March 10, 2023, and the yield closed below 5% for the first time since September 23. Lower yields raise the present value of future profits, and growth stocks benefit most.
Fed Day and Two Megacap Reports Could Decide It
Fundstrat’s Tom Lee said he thinks the selloff is nearly over. He pointed to “a crowded short trade in tech” and a Fed that may be “flipping from hawkish to dovish.” ETF analyst Eric Balchunas posted on X: “Buying the dip here has [a] pretty good record of working.”
The Fed announces its decision on Wednesday, October 28, at 2:00 p.m. ET. Microsoft is expected to report around October 28 and Amazon around October 29, both after the close, although neither company has confirmed its date. The shorts would be proven right by a yield rebound, weak megacap results, or a hawkish Fed.
What SPY and QQQ Investors Should Research Before Fed Day
SPY still holds a 12.03% year-to-date gain. The October 22 losses came from a narrow group of megacaps while most stocks rose.
QQQ, up 14.68% year-to-date, gives you more exposure to the tech stocks at the center of this fight. It would gain the most from a squeeze and lose the most if the shorts win. SPY is the broader fund because it holds stocks that rose as well as those that fell.
Check the October 30 close. If the 10-year yield is back above 5% and SPY is below $763.96 after Amazon reports, the bears have the stronger case.
Contact [email protected] for any questions or corrections.
Omor Ibne Ehsan is a writer at 24/7 Wall St. He is a self-taught investor with a focus on growth, cyclical, and dividend equities that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as penny stocks.
