ETFs
Short interest in the 2 largest US stock ETFs has fallen to historic lows (NYSEARCA:SPY)
Torsten Asmus
JPMorgan’s global markets strategy team noted that short interest in the SPDR S&P 500 ETF Trust (NYSEARCA:TO SPY) and the Invesco QQQ Trust ETF (NASDAQ:QQQ) fell to historic lows, but warned that a reversal of that decline could impact U.S. stocks.
The SPY tracks Wall Street’s benchmark S&P 500 (SP500), while the QQQ tracks the tech-focused Nasdaq 100 (NDX). Both exchange-traded funds (ETFs) are extremely popular with investors, with the first being the oldest in the United States and the second having launched in 1999.
Declining short interest in these two largest equity ETFs since the second quarter of 2023 has been key support for the U.S. stock market, according to JPMorgan. See below a chart highlighting short interest information since 2018:
According to data provided to Seeking Alpha by S3 Partners, short interest as a percentage of float on QQQ was 16.61% in 2018. It dropped to 13.22% for 2023. Meanwhile, short interest short term as a percentage of float on the SPY was 16.61% in 2023. 17.67% in 2018. This figure returned to 14.35% in 2023.
For comparison, over the same period from 2018 to 2023, QQQ rose 163.05% and SPY rose 78.11%.
“SPY and QQQ represent investors’ primary vehicles for placing positions in U.S. stocks at the index level, the decline in their short interest has provided steady support for U.S. stock indexes as short positions have been gradually covered,” Nikolaos Panigirtzoglou of JPMorgan said in a study. note Thursday.
“In other words, the decline in short interest over the past year for these two major ETFs has become the equivalent of an implied short trade. And given the current weakness of their short interest, this implied short-term transaction appears rather extended by historical norms, posing vulnerability to U.S. stocks in a scenario in which negative news begins to reverse last year’s decline in short interest,” he said. added Panigirtzoglou.
The analyst and his global market strategy team estimate the end-of-quarter rebalancing flow at around $50 billion excluding stocks.