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

A terrible year for most investors in the stock market is one celebrated for traders who successfully bet on its decline.

U.S. short sellers are up 31% in 2022, sitting on $300 billion in mark-to-market revenue on average short interest of $973 billion, research from data analytics firm S3 Partners showed Wednesday. .

These gains came as equity markets closed in on their worst run since the Global Financial Crisis more than a decade ago.

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

Major indexes also snapped a three-year winning streak in 2022, battered by the Federal Reserve’s aggressive monetary tightening to quell stubborn inflation and Russia’s war on Ukraine.

Short-share returns outperformed long returns on the S&P 500 and broader Russell 3000, according to S3. But shorts did little in the tech-heavy Nasdaq Composite as it endured the brunt of last year’s selling pressures, meaning market gains realized by investors who bet against Nasdaq will be further wiped out by the decline in the index.

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“Short sellers still need to become good stock pickers to maximize their returns,” S3’s Ihor Dusaniwsky said in a note. “Even at a higher macro level, choosing which sectors to underperform produces different returns.”

Communication Services and Consumer Discretionary are the most profitable sectors for short sellers, earning traders an average return of 50%. The two components of the S&P 500 led the decline of the other nine sectors, logging losses of 37.7% and 36.2%, respectively, in 2022.

Meanwhile, the average short seller in Energy decreased 28% for the year as the sector gained 64.6%, the only one of the two with a positive return along with utilities.

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Big names like Facebook parent Meta (META), Alphabet (GOOG, GOOGL), Netflix (NFLX), and AMC Entertainment (AMC) are among the most profitable shorts in the Communications Services sector. In 2022, for long-term investors, Meta shed 64%, Alphabet fell 39%, Netflix lost 51%, and AMC fell 86%, respectively.

Short sellers, however, took a $5.5 billion mark-to-market gain on Meta’s decline, $2.7 billion on Alphabet’s decline, $2.3 billion on Netflix’s decline, and $2.1 billion on decline in AMC.

Within Consumer Discretionary, headliners like Tesla ( TSLA ), Carvana ( CVNA ), Amazon ( AMZN ), and Rivian Automotive ( RIVN ) are money makers for short sellers.

Tesla ended its worst year on record in 2022, shedding 65%, or about $700 billion in market value due to concerns about supply and demand and CEO Elon Musk’s handling of Twitter. Carvana had an epic decline of nearly 100%, and Amazon and Rivian each fell 50% and 81% in 2022.

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In 2022, Tesla will be the most profitable and the largest average short in the US, earning traders who bet against the company’s $15.8 billion in market value.

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

Tesla CEO Elon Musk gives interviews as he arrives at the Offshore Northern Seas 2022 (ONS) meeting in Stavanger, Norway on August 29, 2022. - The meeting, held in Stavanger from August 29 to September 1, 2022, presents the latest developments in Norway and internationally related 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 gives interviews as he arrives at the Offshore Northern Seas 2022 (ONS) meeting 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 him on Twitter @alexandraandnyc

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