Markets rarely do exactly what everyone expects. Despite an increasingly uncertain macro backdrop, short interest across the S&P 500 has risen sharply, with the median stock now at around 3.2% of market cap. That creates an interesting setup as we head into the final months of the year. Historically, peaks in short interest haven’t necessarily coincided with market tops. In fact, crowded short positioning can provide fuel for a rally if sentiment improves, as investors are forced to unwind bearish positions. We saw a similar build-up in short interest during the mid-2000s, before that positioning unwound as equities continued higher. With the historically stronger year-end period approaching, could we see something similar this time? The economic backdrop may be deteriorating, but positioning suggests plenty of investors are already prepared for bad news. A strong bearish consensus could ultimately set the stage for an end-of-year market rally. Follow @OakleighIM for more insights.