A dealer works on April 9, 2025 in New York on the ground of the New York Stock Exchange.
Angela Weiss | AFP | Getty pictures
A huge number of hedge funds were hurried to suddenly close their positions on Wednesday afternoon in shares and to transform a breathtaking rally for the history books.
Dealer betting on the slope of the share corner before Wednesday a record number of short bets against US shares, when President Donald Trump initially introduced steep than expected tariffs.
In order to sell briefly, Hedge funds borrow the security against which they bet from a bank and sell them. If the safety of the price decreases from where you sold it, buy it cheaper back and give it back to the bank, which benefits from the difference.
But sometimes that can backfire.
When the shares in the news rose about the tariff break, the hedge funds had to quickly buy their borrowed stocks back to limit their losses, a Wall Street phenomenon known as a short squeeze. With this artificial purchasing power, which it drives higher, the S&P 500 ended the third largest profit since the Second World War.
According to the Bank of America, the short positioning was almost twice as much as in the first quarter of 2020 in the middle of the beginning of the Covid pandemic. When the funds to cover took, according to Goldman Sachs, a basket with the most short -circuited stocks rose by 12.5%, which fell down a larger jump S&P 5009.5% profit.
And a whopping 30 billion stocks traded on US exchanges during the session, according to Nasdaq and Factset data, marks the age of 18 years.
“You cannot catch a movement. If you see someone who has a short cover, the exit doors will be so small due to these overcrowded trades,” said Jeff Kilburg, KKM Financial CO and CIO. “We live in a world in which the market twitches, there are more and more paranoia.”
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S&P 500
Of course there were also real buyers. According to data from the Bank of America, Long-only funds bought a record use of tech shares, especially in the last three hours, during the meeting, especially in the last three hours of the day.
But retailers appreciate the shorts that are carried out for the size of the move for cover.
“The pain on the short side is noticeable; the whipsaw that we have seen in the past few weeks is extreme,” said Oppenheimer's trader in a note. “What we saw in the technology in this ascent was obviously covered, but more real buyers who added half a quality semis.”
Thin liquidity also played a role at Monster Moves on Wednesday. According to Goldman Sachs, the size of the equity futures (CME E-Mini S&P 500-Futures) can be returned to an all-time low of $ 2 million. Drastically thin markets tend to refuel oversized price fluctuations.
The markets withdrew on Thursday when the investors found that the economy is still in danger due to super -height tariffs in China and the uncertainty that daily negotiations with other countries will have in the next three months.
There are still big short positions on the market, said dealers.
That could stimulate things again when the market begins to gather again.
“The desk view is that the short cover is far from over,” said Bank of America in a note. “Our reasons are that the market cannot reduce a short risk in less than 3 hours, which provided 20%+ SPX index downside and a greater reduction in net compatibility over 7 seven weeks.”
“No shot has been clarified in less than 3 hours,” said Bank of America.
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