Short sellers made $300 billion in 2022’s market wipeout

A terrible year for most investors in the stock market was a year to celebrate for traders who successfully bet on its decline.

U.S. short sellers are set to rise 31% in 2022, sitting on $300 billion in market gains on an average short interest of $973 billion, a study from data analytics firm S3 Partners showed on Wednesday.

These gains came as equity markets ended their worst period since the Global Financial Crisis more than a decade ago.

The S&P 500 is down 19.4% in 2022, the Dow is down 9%, and the Nasdaq Composite is down 33%. For the first time since 2000, the Nasdaq fell in every quarter of the year.

The major indexes also snapped a three-year winning streak in 2022, which was interrupted by extreme monetary tightening by the Federal Reserve to contain stubborn inflation and Russia’s war in Ukraine.

According to S3, returns from the short side outperformed long returns for the S&P 500 and the broader Russell 3000. But the shorts slightly underperformed the tech-heavy Nasdaq Composite as it weathered the brunt of last year’s selling pressures, meaning market gains were realized by investors who bet against the Nasdaq. would have disappeared due to the decrease in the index.

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“Short sellers still needed good stock pickers to maximize their returns,” S3’s Ihor Dusaniwsky said in a note. “On an even more macro level, choosing which sectors produce very different returns in the short term.”

Communication Services and Consumer Information were the most profitable sectors for short sellers, with traders receiving an average return of 50%. Two components of the S&P 500 are declining among the other nine sectors, losing 37.7% and 36.2% in 2022, respectively.

Meanwhile, the average short-seller in Energy fell 28% as the sector posted a 64.6% gain, one of the two with positive returns along with utilities.

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Big names such as Facebook parent Meta ( META ), Alphabet ( GOOG , GOOGL ), Netflix ( NFLX ), and AMC Entertainment ( AMC ) were among the most profitable shorts in the Media Services sector. In 2022, for long investors, Meta fell 64%, Alphabet fell 39%, Netflix lost 51%, and AMC fell 86%, respectively.

However, short sellers gained $5.5 billion in market gains from Meta’s decline, $2.7 billion from Alphabet’s decline, $2.3 billion from Netflix’s decline, and $2.1 billion from AMC’s decline.

Among the Consumer Reports, headlines like Tesla (TSLA), Carvana (CVNA), Amazon (AMZN), and Rivian Automotive (RIVN) were money makers for the shorts.

Tesla finished 2022 with its worst year on record, dropping 65%, or about $700 billion, in market value due to concerns about supply and demand and CEO Elon Musk’s Twitter handle. Carvana has an epic decline of nearly 100%, and Amazon and Rivian are each down 50% and 81% in 2022.

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In 2022, Tesla was the most profitable and largest average short in the United States, with traders who bet against the company earning $15.8 billion in mark-to-market gains.

CEO Elon Musk’s deal to buy Twitter, in contrast, hurt short-sellers with a 37% mark-to-market loss, S3 Partners said.

Tesla CEO Elon Musk talks as he arrives at the 2022 North Sea Summit (ONS) in Stavanger, Norway on August 29, 2022.  - The meeting, held from 29 August to 1 September 2022 in Stavanger, presents the latest developments.  Norway and internationally are connected to the energy, oil and gas sector.  - Norway OUT (Photo by Carina Johansen/NTB/AFP) / Norway OUT (Photo by CARINA JOHANSEN/NTB/AFP via Getty Images)

Tesla CEO Elon Musk talks as he arrives at the 2022 North Sea Summit (ONS) in Stavanger, Norway on August 29, 2022. (Photo by CARINA JOHANSEN/NTB/AFP via Getty Images)

Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc

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