Short sellers ended 2023 with $195B in losses

Despite gains from regional banks and vaccine makers, Tesla and Nvidia were behind some of the largest losses.

Regional banks and vaccine makers were among the few bright spots for short sellers in 2023, as the stock market’s big rally last year delivered the group’s steepest cumulative loss since the depths of the pandemic.

First Republic Bank’s collapse made it the year’s most profitable short wager, yielding paper profits of $1.6 billion, according to data from S3 Partners LLC. Meanwhile, vaccine producer Moderna Inc., which slumped 45% in 2023, was second, earning $1.1 billion for short sellers, who bet on a stock’s decline.

The results highlight some of the biggest market-moving forces in 2023, including the regional banking crisis that unfolded in the spring and the decline of coronavirus vaccine makers as demand for the shots dwindled. Of course, short sellers suffered major losses wagering against megacap technology firms, which surged in 2023 and led a broad rebound in equities after the market took a beating the year before.

Overall, short sellers ended 2023 with paper losses of nearly $195 billion, offsetting about two-thirds of the nearly $300 billion in gains they reaped in the market rout of 2022, according to S3. The group lost about $142 billion cumulatively in 2021 and $242 billion in 2020.

Tesla Inc. gave short sellers the most pain, with $12.2 billion in paper losses in 2023 as the stock of the electric-vehicle maker roughly doubled. Nvidia Corp, which lost contrarian traders $11.2 billion, was next on the list, which includes most of the so-called Magnificent Seven, semiconductor companies and also Coinbase Global Inc. as bitcoin rallied.

Because short sellers tended to pile the most dollars into stocks that had the largest gains last year, 73% of every dollar shorted produced a negative return, Ihor Dusaniwsky, managing director of predictive analytics at S3, wrote in a Thursday report.

But the count of stocks that handed short sellers wins versus losses last year was more balanced, he said.

“Surprisingly, there were almost as many stocks that were profitable shorts versus unprofitable shorts,” Dusaniwsky wrote, adding that the communication services, consumer staples, health care, materials and utilities sectors actually had more shorted stocks with positive returns than negative returns.