A Short Second Half

Pexels

After a wondrous first half for investors, especially for those in growth stocks, the second half of 2026 has been a struggle.  The Russell 3,000 -- which represents roughly 98% of publicly traded US stock market cap -- is up about 3% in the 2nd half, but the average stock in the index is actually down 4.4%.

Along with rising interest rates hurting the most interest-rate sensitive areas of the market, it appears as if the shorts are betting big and winning these days.

We broke the Russell 3,000 into deciles (10 groups of roughly 300 stocks each) based on each stock's short interest as a percentage of its equity float.  We then calculated the average 2nd half percentage change of the stocks in each decile.

Decile one in the chart below all the way to the left of the image, contains the decile of most heavily shorted stocks in the Russell 3,000.  Stocks in this decile are down an average of 13.6% in the 2nd half.  As short interest levels get smaller, performance gets better, and the two deciles containing the least heavily shorted stocks are actually averaging gains in the 2nd half.

During big market rallies, shorts feel the pain and usually push prices higher as they rush to cover.  We're definitely not in that type of environment now, and we haven't been for months.

On the flip side, as the shorts get more confident from their winning ways, the spring gets coiled further.  The next time we get a positive market development that brings investors back into equities, be it from lower oil prices, lower rates, upside earnings, economic surprises, or something that's not on anyone's radar right now, the ensuing short covering could be more extreme than usual.

For now, though, the shorts are winning big in the second half.

For those interested, below is a list of the most heavily shorted stocks in the Russell 3,000.  At the top of the list are Wolfspeed (WOLF), Hertz (HTZ), Groupon (GRPN), and Lucid (LCID).  Other notables include Rent the Runway (RENT), Xerox (XRX), Dave & Buster's (PLAY), NANO Nuclear (NNE), and Upstart (UPST).