New York (CNN Business)Hedge funds that bet against GameStop and other stocks have been crushed by the Reddit army — and they’re infecting the rest of Wall Street.
The most heavily shorted stocks have nearly doubled in value over the last three months, according to Goldman Sachs. Those staggering gains created distress for short-sellers, setting off a negative spiral in the broader markets.
“The past 25 years have witnessed a number of sharp short squeezes in the US equity market,” Goldman Sachs strategists wrote in a note published Monday, “but none as extreme as has occurred recently.”
For context, the most heavily shorted stocks with market values above $1 billion rose by a more modest 77% during the second quarter of last year. The current short squeeze also exceeds the 56% rally for those stocks toward the end of the Great Recession and similar ones during the dotcom bubble.