Rising bond yields, geopolitical tensions, and the Federal Reserve’s inflation-fighting campaign were expected to pressure heavily shorted U.S. stocks. Instead, a Goldman Sachs basket of the most-shorted shares—including Rackspace Technology Inc., Ui Path Inc., and Terawulf Inc.—has risen 32% in 2026, outperforming the S&P 500. If sustained, the group could gain 47% for the year, matching its 2020 peak.

AI-driven narrative shifts, particularly in software and infrastructure stocks, have fueled momentum despite high short interest. Rackspace, which pivoted to AI infrastructure in July, has surged 333% since January. Terawulf and others like Novavax Inc. and Iren Ltd. are also on track for double-digit gains.

Not all stocks are winners: Under Armour Inc., Jet Blue Airways Corp., and Quantum Computing Inc. have declined. The basket advanced in six of eight months before stalling in September, down 4.3% this month. With a 65% chance of an October rate hike priced in, the group faces a key test.

Short sellers remain active, with bearish interest up $243 billion in 2026, exceeding 2024–2025 totals, largely from leveraged hedge funds offsetting long positions.