Retail is buying and Hedge funds are shorting – who will be wrong?

U.S. margin debt climbed to a record $1.3 trillion in April 2026, marking a 53% increase from a year earlier. This means that people are borrowing money to invest in the stock market (being leveraged). The sharp rise reflects growing investor risk appetite and increased leverage amid surging equity valuations and strong stock market momentum. 

For us at Apple Tree Capital Partners, this is a very scary graph. Historically, rapid expansions in margin borrowing have coincided with periods of elevated market optimism and heightened speculative activity. And the largest crashes in stock markets have often been driven by being (over)leveraged. Markets go down, people cannot cover their interest, cannot pay back their debt, have to sell more to pay back the banks, accelerating the downfall.

And the graph below shows that this is not a far-fetched scenario. 

Adding to the scariness is that hedge funds are shorting the US stock market at the highest level since 2021. The short exposure to US equity index and ETF products just hit 13% of total gross exposure. It is nearly double where it was before COVID and the highest reading in 5 years. The S&P 500 is near all time highs. Bond yields are at 2007 levels. And Japan's bond market is cracking. Korean retail investors are borrowing record amounts to chase stocks higher.

And according to Goldman Sachs the S&P 500 saw an unprecedented $2.6 trillion notional in call options traded in a single day - a surge that reflects what he described as a market entering a “semi-irrational chase mode.”

Retail is buying and Hedge funds are shorting.

One of them is about to be very wrong.

Sources: Econovis, dailychartbook, Bull Theory on X, NYFedConsumerCredit, zerohedge, Equifax, GS