(Bloomberg) -- It was a brutal month for those betting against the US stock market. 

Short-sellers were caught flat-footed as the S&P 500 Index roared back from a three-month slump with the strongest gain since July 2022, hammering them with mark-to-market losses of over $80 billion, according to data from S3 Partners LLC. That’s the biggest hit since January, when equity prices staged a surprisingly strong rebound from last year’s rout.

It’s the latest blow for a group that’s seen its bearish bets repeatedly upended in 2023 as the stock market defied naysayers, climbing sharply even as the Federal Reserve pushed up interest rates. 

For most of this year, the gains were fueled by an economy that remained unexpectedly resilient and by advances in artificial intelligence that set off a tech-stock frenzy. Then, after the Fed on Nov. 1 held interest rates steady for a second-straight meeting, share prices started surging again amid conviction that its most aggressive monetary policy tightening since the 1980s is finally over.

“The shorts had to cover so quickly, it’s almost like they didn’t know what hit them,” said Quincy Krosby, chief global strategist at LPL Financial. “The market can be terribly perverse.”

The advance pushed the S&P 500 Index up 8.9% for the month, its second-best November in four decades, leaving it with a 19% gain this year. That has driven it back near the late July peak, wiping out virtually all of the losses from the previous three months, when traders were worried that the economy’s strength would prod the Fed to take a more aggressive path.  

“November has been almost a 180 from what we experienced from August to October,” said Keith Buchanan, a portfolio manager at GLOBALT Investments.

The drubbing has left short sellers with paper losses of $106 billion this year, a big reversal of fortunes after they gained nearly $300 billion during the 2022 rout, according to S3. 

The recent rally may have gained support from short-sellers who bought shares to close-out money losing positions. “Short covering is how you get a good, broad-based market rally going,” said Louis Navellier, founder and chief investment officer of Navellier & Associates.

Short bets against tech stocks were hit hardest. Information technology and consumer discretionary were the worst performing sectors on the short side in November, with Tesla Inc., Apple Inc., and Nvidia Corp. leading mark-to-market losses among shorts as they posted outsized gains.

But the lingering risk of a recession appears to have emboldened some bets against the stock market by those who think it has run up too far. Ihor Dusaniwsky, managing director of predictive analytics at S3, said the volume of open short positions rose to about $940 billion by Nov. 30 from $838 billion on Nov. 2. 

“We see shares shorted increasing and mark-to-market value of the shorted securities increasing,” he said. “Shorts are increasing their positions even if the market is going against them.”

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