Big Investors Are Betting Against Stocks. Goldman Says That Could Backfire.
Hedge funds have added to their bets that stock prices will fall, and those bets now sit near a five-year high. Goldman Sachs has warned that a rebound could force a sharp squeeze, Bloomberg reported on October 22, 2026.
Hedge funds are large investment pools that serve wealthy people and institutions. Goldman's prime brokerage unit, which lends them stock and money, can see their positions in detail. Its data shows the scale of the bets. Short leverage in the bank's prime book stood at the 99th percentile of its five-year history, according to reporting on the same week's positioning.
Short leverage is the value of stock that funds have borrowed and sold, compared with the size of their own money. A reading at the 99th percentile means the funds are about as heavily short, measured against their own past, as they have been in five years.
A short bet works like this. A fund borrows shares, sells them, and promises to buy them back later. If the price falls, the fund buys back cheaper and keeps the gap. If the price rises, the fund still has to buy back, and it pays more. That forced buying is what makes a squeeze possible. When prices rise, funds rush to buy back shares, and that buying pushes prices higher still.
This has been building for months. In February 2026, hedge funds' short sales of U.S. stocks outpaced their purchases of stocks to hold, two to one, per Bloomberg's February reporting.
Goldman's view has moved in a different direction on one measure. In an October 9 note, Goldman stated that hedge fund positioning in equities for long-short strategies is at historically low levels, pointing to volatility in interest rates and oil.
Both readings can be true at once. A fund can have little overall exposure to the market while holding many shorts against a smaller set of longs. Which picture dominates right now is the central question in the squeeze debate.
Tech is where the selling has been sharpest. Goldman's prime desk said hedge funds retreated from technology stocks at the fastest pace in at least a decade. Returns show the strain. Global fundamental long-short funds fell 3.8% in October 2026 through the latest Goldman figures, but were still up 8.8% for the year as of October 23, according to Goldman Sachs as reported by Reuters.
In my view, the October loss is the part still in progress, while the year-to-date gain acts as a cushion. That cushion is why this looks more like money rotating out of tech than a full rout, though that could change quickly.
Asia has been harder. Asia-focused fundamental long-short funds fell 18.6% on average through July 28, according to a Goldman prime brokerage note reported by Reuters on July 30. Stock pickers outside the United States had a rough summer.
The squeeze risk has a recent precedent. In January 2021, Melvin Capital Management lost 53% for the month after heavy losses on stocks that had been heavily shorted, including a GameStop short, as MarketWatch reported at the time. That episode was concentrated in a small number of stocks.
The current warning is broader. It concerns crowded bets across many holdings. A rally driven by buying back shorts across the market would move prices for ordinary savers in index funds and retirement accounts, not only for the funds on the other side.
Morgan Stanley took a different angle. Its January 2026 outlook said hedge funds, particularly market-neutral strategies, are attractive, in its January 2026 outlook. Market-neutral funds hold matched long and short bets, so they are designed to be less affected by where the overall market moves. That makes them different from funds that are simply betting on falling prices, and the difference matters for how a squeeze would spread.
The useful test for the next few weeks is simple. Either short bets shrink as funds buy back shares calmly, or a rally forces a scramble. Goldman's warning is a risk flag, not a forecast that prices will rise. The positioning data shows what funds hold, not where prices will go.
