Goldman Sachs Warns of Short Squeeze Risk in U.S. Stocks Becoming Fuel for a "Short Squeeze" Rally

May 28: S3 Partners’ latest data shows total short interest across U.S. and Canadian equity markets has surged by nearly $100 billion since the end of April, hitting $2.13 trillion—its highest level on record since 2010. Complementary primary broker data from Goldman Sachs adds that the median short interest as a share of market capitalization for S&P 500 components has climbed to 3%, a peak not seen since the end of 2011. Goldman Sachs’ trading team points out this extreme positioning signals the market’s next phase of upside momentum will likely not be led by large-cap tech stocks, but rather by rallies driven by short squeezes—especially in out-of-favor, heavily shorted sectors where reversal risks continue to build. Bearish bets have spread beyond the information technology sector to industrials, financials, and energy, with a sharp concentration of shorts in defensive areas: median short interest in healthcare is near a 30-year high, while utilities and consumer staples are approaching their all-time peaks. Goldman Sachs warns “right-tail risk” in these sectors is rising significantly. U.S. stock market sentiment has improved notably since March, and capital is starting to rotate: last week, hedge funds posted their fastest pace of buying non-essential consumer goods in two months, while net exposure to consumer staples saw its steepest drop in over five years. Research firm Wolfe Research notes that if geopolitical tensions ease, equally weighted allocations to sectors like non-essential consumer goods, technology, and industrials are poised to gain further traction.