a more than 125 billion institutional short position has been building up against the stock market driven by hedge funds according to bnp paribas futures contract data points to a sharp increase in the amount of bets against the sp 500 index spx in recent months even though the stockmarket gauge has climbed nearly 17 from its midjune low when it tipped into a bear market greg boutle head of us equity derivatives strategy at bnp said positioning has “remained defensive” in a client note this week which highlighted the growing short position see chart against the stock market boutle said that despite signs of us inflation cooling from 40year highs it likely would take “a larger and more persistent improvement in the macro outlook to drive a larger scale reallocation of institutional money back into equities” the sp 500’s sharp climb has hit resistance this week as the benchmark approached its key 200day moving average “at this point after the 17 rally all the energy is gone to push higher” said keith lerner cochief investment officer at truist advisory services by phone “but there could be a pain trade if the market breaks out of shortterm consolidation” still any breakout higher likely would be shortlived he said given high stockmarket valuations and expectations for further global tightening of financial conditions federal reserve bank of st louis president james bullard said thursday he may support another large interest rate rise at the central bank’s sept 2021 policy meeting however kansas city fed president esther george was more cautious saying that she remains concerned about the inflation outlook peter cardillo chief market economist at spartan capital securities said that bearish bets preparing for a type of 2008style global financial crisis would be “bullish for stocks” since he thinks a downturn of that magnitude would be unlikely in the current environment more broadly fund flows also show significant interest in “shortbiased” investing in roughly the past three months according to refinitiv lipper data as investors wrangle with questions about the durability of the us economy as the federal reserve raises rates billions have poured into funds see chart that consistently create a “net short” exposure to the overall market july saw about 32 billion of inflows to lipper dedicated shortbiased funds the largest monthly intake since april 2020 so far those bets have been paying off according to jack fischer senior research analyst at refinitiv lipper us diversified equity funds returned an average of negative 142 on the year through aug 4 according to refinitiv lipper but its dedicated shortbiased funds were up 88 for the same stretch when excluding those classified as focused on commodities “the debate can continue whether or not we are in a recession but what we can see is that there is both growing demand and supply for exposure betting against the overall market” fischer wrote in a recent client note see proceed with caution if you trade stocks based on this popular market signal