By Jacob Sonenshine

The stubbornly strong stock market is giving traders and opportunity to short, or bet against, some of the most volatile names.

The Russell 1000, an index of the 1,000 largest U.S. companies by market capitalization, is up about 7% this year, recently hitting several new records. It has gained almost twofold in the past five years, including a burst higher in the past few months, even as the recent threat of tariffs has raised fear of inflation that would compel the Federal Reserve to keep interest rates elevated.

In the past few months, many "high-beta stocks," those that are typically more volatile than the index, have outperformed. While that is a sign that the market is confident that the economy can hold up regardless of tariffs, and that the levies are unlikely to go much higher, the rally also positions those shares to fall in response to the slightest disappointments about the economy or their earnings.

As their definition implies, they are volatile. It isn't usually smart to buy them after they have surged.

It's usually a better time to short them. Traders short a stock by borrowing shares from another market participant, immediately selling them, and then buying them back, usually within six months. The hope for the short seller is that he or she can buy shares at a lower price, profiting on the difference.

Technical analysts at Renaissance Macro Research scoured the market for high-beta stocks that have rallied in recent months, but that are in longer-term downtrends. The idea is that while many of these have rallied in response to hopes for an improving economic outlook, they are likely to stumble soon, especially because their businesses have struggled in the past few years.

Some names the analysts highlighted are Apa Corp., Matador Resources, Viking Therapeutics, Align Technology, Teradyne, and Stanley Black & Decker.

Another, and one of the best examples, is Target. The stock is up 22% since its 2025 low in early April, but it is down 13% in the past five years. The business has underperformed expectations in the past few years, making it shares vulnerable to disappointment, especially because they have been reflecting expectations of stronger consumer spending recently.

The same story is true for RH, formerly called Restoration Hardware. The stock is up 52% from its April low, but down 23% in the past five years.

Take a chance on some of these stocks by shorting them, not by buying.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

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July 23, 2025 11:19 ET (15:19 GMT)

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