E-mini S&P 500
Fundamental Analysis

E-mini S&P 500 (ES) Futures Short Bets Increasing Ahead of Jackson Hole

  • Tech stocks drove the decline in the markets this past week.
  • Hedge funds increase their S&P 500 short bets.
  • Investors await the annual conference of central bankers in Jackson Hole.

The E-mini S&P 500 (ES) futures closed the week ended August 19 down 1.2% for the week at 4,228.48, interrupting a four-week winning streak and bringing the major U.S. averages to a disappointing conclusion.

“Despite the recent surge in the overall equity market, the S&P 500 could not close above its 200-day moving average. As a result, the market is now going through a digestion phase. This phase is triggered by weaker-than-expected economic reports and anxiety ahead of the statements and policy indications expected to emerge from the Jackson Hole Economic Symposium,” Sam Stovall, Chief Investment Strategist at CFRA Research, told Benzinga.

This overall market decline was also reflected in the E-mini S&P 500 (ES) futures. The S&P 500 recovered four weeks in a row, rising about 17% from its 52-week low on June 16 due to what is widely believed to be the Federal Reserve’s efforts to contain inflation.

On the other side, hedge funds are becoming less optimistic about the rally as their net short holdings on the S&P 500 rose to $125 billion last week, per MarketWatch data.

The Chief Investment Strategist at Charles Schwab, Liz Ann Sonders, noted on her Twitter page that hedge funds are increasing their short bets as net futures positions for the S&P 500 are falling and have reached their lowest level since June 2020.

S&P 500 futures positions chart by CFTC (source: Bloomberg)
S&P 500 futures positions chart by CFTC (Source: Bloomberg)

Markets, in general, have been volatile; in 2021, they reached record highs before going into a bear cycle in the first half of 2022. As several equities hit new lows in response to the earnings seasons in February and April, the subsequent bull bounce appeared to have caught everyone off guard.

Short sellers may reevaluate their holdings and participate in the recent uptrend as the summer holiday closes and fresh economic data is released to the markets. Liquidation of some short positions could boost the markets if the upward rally persists.

This week will lead to the annual conference of central bankers in Jackson Hole on Thursday and Friday and is expected to be marked by caution.