Goldman Sachs sees $2.1 trillion short squeeze fueling unloved sectors

Total bearish positions across U.S. and Canadian equities surged nearly $100 billion to $2.13 trillion, an all-time high in data tracked by S3 Partners LLC going back to 2010.

"The setup is a turning point — the next leg higher is more likely to come from short covering that forces buying outside mega-cap tech," a Goldman Sachs trading desk note said.

The median short interest in S&P 500 Index stocks has climbed to 3% of market capitalization, the highest since late 2011, according to Goldman's prime brokerage data. The S&P 500 has rallied 12% since March 30, its sharpest advance since April 2020, yet bearish bets have continued to accumulate rather than unwind.

If the squeeze materializes, it would broaden a rally that has been dominated by a handful of mega-cap technology names, potentially pulling capital into value and cyclical sectors that have lagged during the two-month advance. The S&P 500's top 10 holdings now represent nearly 41% of the entire index, according to data cited by Business Insider, making a broadening of leadership a key risk-management event for portfolio managers.

Record Bearish Bets Create Squeeze Potential

The $2.13 trillion in short positions across U.S. and Canadian equities marks a milestone in S3 Partners' dataset, which began in 2010. The buildup comes even as the S&P 500 has recovered from its March lows tied to geopolitical tensions, suggesting bearish conviction has deepened rather than faded during the rebound. The divergence between price action and positioning is what Goldman's trading desk sees as the squeeze trigger.

Goldman's strategists, led by Ben Snider, project the S&P 500 will rise 7% from current levels to end the year at 7,600. "The U.S. equity market should continue to make new highs in coming months on the back of continued earnings growth," Snider said. The call echoes the bank's view that forward-looking equities often rebound before the "all clear" is sounded — a pattern it says played out in 2009, 2020 and 2025.

The setup mirrors conditions that have historically preceded sharp rallies in unloved corners of the market. When short interest reaches extreme levels and the underlying index continues to grind higher, short sellers face mounting pressure to cover positions, which in turn accelerates upward price momentum. Goldman's trading desk believes the current configuration — record short interest combined with a resilient S&P 500 — creates the conditions for this dynamic to play out across sectors that have been most heavily bet against.

Sectors in Play

Goldman recommends investors tilt portfolios toward secular growth companies with idiosyncratic earnings tailwinds and limited AI disruption risk — specifically firms tied to investment in power infrastructure. Stocks the bank highlights include Broadcom Inc., Nvidia Corp., Advanced Micro Devices Inc., Amazon.com Inc., Meta Platforms Inc. and Micron Technology Inc.

The call represents a bet that market leadership will broaden beyond the mega-cap technology names that have driven the bulk of the S&P 500's gains over the past two months. Sectors that have accumulated the heaviest short interest could see the most violent squeezes if buying pressure forces covering, according to the Goldman note. Utilities, real estate and select consumer staples names have been among the most shorted groups, making them prime candidates for a squeeze-driven rally.

The squeeze thesis is playing out against a backdrop of elevated oil prices, with U.S. gasoline above $4 per gallon, and persistent inflation concerns that have kept the Federal Reserve on hold. A broadening of the rally would also reduce the concentration risk that has left the S&P 500 vulnerable to a shock in any single mega-cap name. For portfolio managers running concentrated positions in the index's top-weighted stocks, a rotation into unloved sectors would provide a natural hedge against that vulnerability.

This article is for informational purposes only and does not constitute investment advice.