Short sellers line up against the stock as bearish bond bet vanish

(Bloomberg) – A high-profile warning about a possible US recession has prepared investors for the recession.

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Short interest in the $ 352 billion SPDR S&P 500 ETF Trust (Ticker SPY) as a percentage of outstanding shares is above 7%, the highest since March 2020, data from IHS Markit Ltd shows. Meanwhile, bets against the $ 19.5 billion iShares 20+ Year Treasury Bond Exchange-Traded Fund (TLT) have shrunk to just 3.5%, the lowest since September 2020.

This dynamic highlights the concerns of the US economy as price pressures increase. Federal Reserve Chairman Jerome Powell said Tuesday that “growth needs to slow down” in order to cool inflation and, consequently, “some pain may be involved” in restoring price stability. According to Peter Tichi of Academy Securities, that environment will probably benefit long-standing treasuries, struggling equities.

“We are starting to shift from fear of ‘inflation’ to fear of ‘recession’, so I think the position is consistent with a ‘recession’ perspective,” said Tichir, head of the firm’s macro strategy. “I think the ‘recession’ is premature, but it’s something that I see more people talking about and trading to reflect.”

The SPY has fallen 18% so far this year, with the beer-market region nearing the S&P 500. TLT, the hottest inflation reading in four decades, fell more than 20% in 2022, although a bid amid market volatility returned to bonds last week.

More than $ 32 billion has been pulled from SPY this year, keeping the world’s largest ETF on track for the worst year ever outflow. On the other side of the trade, fixed income funds have been flooded with more than $ 49 billion, although about 96% of bond ETFs have posted year-to-date losses.

(Update price.)

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