Goldman says the stock market is experiencing its biggest short-term squeeze in 25 years – and that hedge funds are shedding equity exposure at the fastest pace since 2009

• According to Goldman Sachs, the US stock market experienced its biggest short-term compression in 25 years over a three-month period.
• The highlight of this came last week, when hedge funds pulled out of the market at the fastest pace since 2009, the company said.
• Day traders have been pushing up GameStop shares and other heavily sold stocks in recent weeks, costing short sellers billions.
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According to Goldman Sachs, the US stock market experienced its biggest short squeeze in 25 years in the past three months.

It all came to a head last week amid GameStop madness that forced hedge funds to dump stocks at the fastest pace since 2009, the firm found.

GameStop shares soared 400% last week – and 1,625% throughout January – squeezing hedge funds and others who had bet against the stock, costing them billions of dollars. A short position is a bet on the fall in the price of a stock. Estimates from data provider Ortex on Friday showed that short sellers have so far taken losses of around $ 19 billion on GameStop alone in 2021.

The surge of GameStop and other heavily sold stocks was driven by users of the Reddit Wall Street Bets forum, who pushed the price up in an effort to make money, but also to hammer hedge funds. such as Melvin Capital. They had to buy stocks in companies like GameStop and the AMC movie chain to close their short positions and sell other stocks to cover their losses.

Read more: Buy these 26 heavily sold stocks as retail traders spark wild rallies in Wall Street’s less popular names, says Wells Fargo

The activity was the culmination of a three-month period that saw the basket of top-selling U.S. stocks rally 98%, far outpacing equally aggressive pressures seen in 2000 and 2009.

“Their hedge funds have sold long positions and hedged shorts across sectors,” said David Kostin, Goldman’s senior US equity strategist.

Kostin and his colleagues said regulations, limits set by trading platforms, or large losses could put an end to the hobbyist trading frenzy.

“Otherwise, an abundance of US household cash should continue to fuel the business boom,” they said.

Goldman said retail investing is booming due to the large amount of savings accumulated during the coronavirus time, as well as government stimulus measures.

“In 2020, credit card debt declined by more than 10%, check deposits increased by $ 4 trillion, and savings increased by $ 5 trillion,” analysts at the bank said. investment.

“On top of these savings, our economists expect more than $ 1 trillion in additional budget support in the coming months, including another round of direct checks.”

Read more: Jefferies Says These 20 Heavily Sold, Lightly Traded Stocks Could See Big Jumps Under GameStop-Style Squeeze