From CNBC: 2025-04-10 12:18:00

A surge in stock prices on Wednesday caught hedge fund short sellers off guard, leading to a historic rally. Short sellers had bet heavily against U.S. stocks in anticipation of steeper tariffs from President Trump. As stocks soared, short sellers were forced to buy back shares rapidly, causing a short squeeze and driving the S&P 500 to its third-biggest gain since World War II. The heavy volume of trading marked a record day on U.S. exchanges.

Long-only funds also bought a record amount of tech stocks during the session, but the magnitude of the move was credited to short sellers rushing to cover their positions. Thin liquidity and outsized price swings played a role in the market’s volatility. Markets were pulling back on Thursday amid concerns of high China tariffs and ongoing trade negotiations.

Traders believe there are still significant short positions in the market, potentially fueling another rally. Bank of America’s trading desk noted that short covering may not be over yet, as the market cannot de-risk a short position in less than three hours. The market remains volatile, with uncertainty surrounding global trade negotiations.

Read more: How the mother of all ‘short squeezes’ helped drive stocks to historic gains Wednesday