The crazy market action in small-cap stocks like Gamestop GME,
and AMC Entertainment AMC,
has drawn incredulous reactions on Wall Street.
But while some may be tempted to dismiss them as an afterthought, this chart from Société Générale suggests that the sky-high gains in a few strongly short stocks are a much broader phenomenon.
Indeed, the stocks with the most short positions in the $ 3 trillion Russell 2000RUT index have made massive gains since the end of last year, beating the rest of their counterparts.
The top 5% most shorted has doubled in value since late October, passing the next 5% most shorted, which in turn outperformed the least shorted stocks.
“This top tranche has now broken down from the next, implying that the level of short-term interest rates itself is the target for much of this activity,” Andrew Lapthorne, head of quantitative equity research at Société Générale, said in a note on Wednesday.
See: It’s not just GameStop: here are some of the other heavily shorted stocks that shoot higher
Analysts have suggested that retailers who converged on platforms like Reddit and Discord were actively looking for stocks with a high percentage of short interest in an effort to generate a short squeeze. The hope was that short sellers faced with hefty losses would cover their shorts and buy back the shares, accelerating profits.
The S&P 500 SPX,
the Dow Jones Industrial Average DJIA,
and Nasdaq Composite COMP,
are on track for a 2% loss this week.
Read: Is Trading GameStop and AMC a Big Risk? Analysts weigh in