What’s more, not one of those 10% declines occurred during a period of accelerating U.S. economic growth. That’s right folks; a big fat donut. However, investors are clearly ignoring history and heeding the caution of Wall Street.
In the S&P 500, long exposure has been declining ever since it peaked in late February. Meanwhile, shorts have been increasing, leaving investors long America’s favorite benchmark, but only by the slimmest of margins.
In the Nasdaq, investors started reducing their historically long positioning last summer, and shorts have been building since October. This leaves positioning in the Nasdaq 100 also long, and also by the slimmest of margins.
In the Russell 2000, investors are actually net short! Long positions have been declining since their peak right after the presidential election, while shorts have increased to the highest level in over three years.
I can understand taking some money off the table if you’ve been long the S&P or Nasdaq for a while. But I can’t understand for the life of me why anyone would be short U.S. small caps, and increasing that short exposure, in the midst of an economic environment in which U.S. growth has been accelerating for eleven months and counting.