This year has been a challenging year for stock sellers.
Investors who short-sell shares on Wall Street have lost nearly RM875 billion this year, according to data from S3 Partners provided to Yahoo Finance.
Six of the top stocks sold by these investors are part of the Magnificent Seven, with Alphabet (GOOGL) the only tech giant not on the list. Most investors on Wall Street did not expect the stock market to rise this year.
However, in line with the potential sophistication of artificial intelligence (AI) technology heralded in the spring of 2023, the growth of companies such as Nvidia (NVDA), Tesla (TSLA), and Meta (META) has increased by more than 100% this year.
Chart of the top list of the amount of losses experienced by the sellers of 'short selling' stocks
The recent market rally that has overtaken the Magnificent Seven charts has made sellers feel the pain with other stocks as well. Since the Fed's meeting on November 1, investors have increasingly believed that the Fed is not only done raising interest rates, but that a rate cut could happen sooner than expected.
This triggered a surge in risky assets that included more areas of the speculative market where investors were more exposed to high interest rates, especially small and medium-sized companies.
As the level of risk tolerance by investors increases, "stock sellers are more prone to getting caught when the market is on the rise," said Interactive Brokers chief strategist Steve Sosnick.
And that is evident in the performance of the market over the past month.
Companies such as Carvana (CVNA) and Affirm (AFRM) —both of which are heavily traded stocks— Fueled by the presence of "FOMO" investor groups, have boosted the performance of both stocks where they have increased by more than 75% only within a month. When that happens, stock sellers are forced out of their short positions, sending stocks higher and compounding losses for investors against the tide.
Investors fighting Carvana have now lost RM10.3 billion this year while sellers of Affirm shares have lost nearly RM7 billion, based on Q3 data.
"In the case of heavily sold stocks, where higher interest rates are going to be a drag, of course they're hoping to see a change in sentiment if there's an interest rate cut," Sosnick said.
