Market Extra: Hedge funds pile up $125 billion bet against the S&P; 500s big summer rally

A more than $125 billion institutional short position has been building up against the U.S. stock market, driven by hedge funds, according to BNP Paribas.

Futures contract data points to a sharp increase in the amount of bets against the S&P 500 index SPX, -1.09% in recent months, even though the stock-market gauge has climbed nearly 17% from its mid-June low when it tipped into a bear market.

Greg Boutle, head of U.S. equity derivatives strategy at BNP, said positioning has remained defensive, in a client note this week, which highlighted the growing short position (see chart) against the stock market.

Institutional money is lining up to short the stock market

BNP Paribas, Bloomberg, CFTC data

Boutle said that despite signs of U.S. inflation cooling from 40-year highs, it likely would take a larger and more persistent improvement in the macro outlook, to drive a larger scale reallocation of institutional money back into equities.

The S&P 500s sharp climb has hit resistance this week as the benchmark approached its key 200-day moving average.