For years, hedge funds and macro strategists have leaned on short-selling as a way to hedge risk, express macro views, or capitalize on valuation excesses. But according to 22V Research, one of Wall Street’s most closely watched macro and policy analytics firms, shorting US equities has rarely been more dangerous than it is right now.
The combination of America’s outsize economic resilience, the explosive rise of AI-driven investment flows, unprecedented corporate spending on automation, and an increasingly global preference for US assets is reshaping the market landscape. Bears who assume that stretched valuations or cyclical late-stage conditions will bring a correction may be stepping directly into a structural supercycle that continues to lift US equities despite conventional logic.
The message from 22V is blunt: the old playbook no longer works. The forces driving the US market today are not cyclical—they are tectonic, and they are pushing against short sellers with relentless pressure.
A New Kind of Market: Structural, Not Cyclical
For decades, analysts framed US equities in terms of traditional economic cycles:
- expansion
- peak
- slowdown
- recession
Short sellers often positioned themselves at the late stage of expansions, betting that slowing data or tightening policy would trigger reversals. And historically, it worked—markets pulled back as liquidity dried up.
But the current environment is fundamentally different. According to 22V, the US is being driven by structural forces that overpower traditional cyclical models.
The result:
The U.S. stock market keeps climbing even as:
- interest rates remain elevated
- inflation stays sticky
- fiscal tightening looms
- geopolitical risk rises
- valuations stretch far beyond historical averages
For short sellers, this disconnect is not just frustrating—it’s financially hazardous.
The AI Supercycle: The Most Powerful Driver of Modern Equities
At the core of today’s market resilience is the AI revolution.
22V argues that AI is functioning not as a trend, but as a productivity supercycle comparable to:
- the rise of the internet
- the diffusion of personal computing
- the industrial explosion of the 1950s
- electrification in the early 20th century
The scale of capital flowing into AI is staggering:
- trillions in market cap expansion
- record-breaking capital expenditures in data centers
- exploding demand for chips, servers, and cloud infrastructure
- corporate-wide adoption of AI productivity tools
- rising margins from automation
Why this makes shorting dangerous:
- AI creates earnings growth that outweighs macro headwinds.
Even high interest rates can’t suppress margin expansion and revenue acceleration driven by automation. - Capital flows into AI are global—and unstoppable.
International investors seeking exposure all crowd into US tech. - AI winners are becoming too systemically large to short.
Mega-cap tech firms dominate indices, making shorting the market equivalent to shorting the most profitable companies in the world. - AI has created a “buyers’ reflex.”
Every dip is bought aggressively by institutions and retail investors, who view AI as a multi-decade growth theme.
In short: AI has broken the old cycle models and created a new baseline of structural demand for US equities.
Corporate America’s Strength: Productivity, Margins, and Balance Sheets
Beyond AI, 22V highlights another key factor: US corporations are unusually strong.
1. Record balance sheet health
- low default rates
- long-duration debt locked at pre-2022 levels
- massive cash reserves
- high free cash flow yields among AI beneficiaries
Corporate America had years to refinance debt cheaply—something Europe and emerging markets could not replicate. This buffers companies from rate shocks, reducing recession risk.
2. Rising productivity
AI, automation, and cloud optimization are boosting output per employee.
US firms have adapted far faster than global peers.
3. Stable revenue despite macro volatility
US corporations benefit from:
- global demand for tech
- dollar strength
- dominant market share in high-margin sectors
- diversified revenue streams
This means earnings remain resilient even when global growth slows.
The Economic Foundation: A U.S. Economy That Refuses to Slow Down
Short sellers have been repeatedly blindsided by the strength of the US consumer and labor market.
Why the US economy is so resilient:
- high immigration keeps the labor force growing
- government incentives for manufacturing and infrastructure expand industrial demand
- household savings remain elevated relative to pre-pandemic levels
- wage growth outpaces inflation in key sectors
- fiscal stimulus continues through industrial policy
22V’s research suggests that the U.S.—unlike Europe or China—is operating with a structurally higher growth floor.
Shorting an economy with that level of resilience becomes a battle against fundamentals.
Global Capital Is Pouring Into US Markets
Another element working against short sellers is the global rotation into U.S. assets.
Reasons for this capital shift:
- Geopolitical risk (China, Middle East, Eastern Europe) drives foreign investors toward American stability.
- Europe’s structural stagnation makes U.S. equities relatively attractive.
- Emerging-market volatility pushes funds toward dollar-based assets.
- US tech dominance leaves no foreign alternative to AI exposure.
- Dollar strength enhances returns for international investors.
This influx of foreign capital provides a floor under US markets—making short positions risky and often short-lived.
Why Short Sellers Keep Getting Burned
Short positions have suffered repeated setbacks because:
1. Dips are aggressively bought
Every decline triggers:
- retail buying
- buyback flows
- systematic risk-parity strategies
- quant momentum rebalancing
- AI thematic funds allocating more capital
2. The top-heavy index means you’re really shorting Big Tech
Short the S&P?
You’re short Apple, Nvidia, Microsoft, Google, Meta, and Amazon—companies that keep printing earnings surprises.
3. Volatility has collapsed
Low volatility makes put options expensive and short futures unproductive.
4. Fiscal policy keeps injecting liquidity
Industrial policy, defense spending, and energy incentives act as fiscal stimulus.
5. Multiples remain structurally higher
AI-driven expectations justify elevated valuations in the eyes of investors.
22V’s Core Warning: The Market Has Changed, but the Bears Haven’t
The firm’s analysis can be summarized simply:
Shorting US stocks is no longer a cyclical trade—it’s a structural mistake.
Bearish traders are misreading the market by:
- relying on outdated recession models
- assuming mean reversion that no longer applies
- underestimating the AI supercycle
- misjudging US economic strength
- ignoring global capital flows
- betting against world-dominant corporations
Shorting US equities today is akin to shorting industrialization in 1905 or the internet in 1998—not impossible to profit from, but extraordinarily dangerous.
Conclusion: The Market Has Evolved—and So Must Traders
The US stock market is being reshaped by forces far larger than interest rates, GDP cycles, or Fed commentary. AI, productivity, corporate strength, global capital flows, and America’s economic resilience have created a new environment where downward pressure is consistently overwhelmed by structural upward forces.
For traders and hedge funds, the message is clear:
Shorting is no longer the hedge it once was—it is now a high-risk contrarian bet against a supercharged, structurally rising market.
22V’s warning is not just about avoiding losses—it’s about recognizing that the U.S. equity market has entered a new era. Bears ignore this at their peril.
