LIVE MARKETS-Bearish bets build: stocks set for a bumpy ride

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BEARISH BETS BUILD: STOCKS SET FOR A BUMPY RIDE

Wall Street's main indexes hit have hit record highs, but short selling has set new monthly records since February as investors bet tariffs would pressure stocks, Brian Reynolds, chief market strategist at Reynolds Strategy LLC, said in a note.

He added that investors built even more short positions in the first half of September, setting up a volatile end to the year.

"With year-end on the horizon, and with so many short positions, there remains the potential for stocks to melt up later this year and in early 2026 should margin clerks force short sellers to cover," he said.

These bearish positions stand in contrast to the record amount of money flowing to the credit market from U.S. public pensions and insurance companies, Reynolds said.

"If short selling continues apace, the VIX curve could invert as it did in March, stoking a brief stock market correction," Reynolds said.

For now, stocks have been fluctuating around 1 standard deviation above trend in recent weeks, Reynolds noted. "Should they approach 2 standard deviations above trend, we would continue to advocate selling the most overheated names in a portfolio," he added.

The CBOE volatility index .VIX, investors' fear gauge, spiked to a more than three-week high on Thursday as stronger than expected data dampened hopes of two more interest rates cuts this year.

(Medha Singh)

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