The historic stock market rally that occurred on April 9 is being attributed to an epic “short squeeze” among professional traders on Wall Street.
The one-day rally sent the blue-chip Dow Jones Industrial Average soaring nearly 3,000 points in a matter of hours and led the technology-laden Nasdaq Composite index to rise 12% in an afternoon. It was the biggest one-day rally in five years and one of the largest ever on Wall Street. Badly beaten down stocks such as Tesla (TSLA), Apple (AAPL), and Meta Platforms (META) skyrocketed.
While many investors initially thought they were in the middle of a relief rally after U.S. President Donald Trump scaled back many of his tariff measures, it is now becoming clear that the surging share prices were the result of massive number of short sellers rushing to close out their bearish positions, leading to what’s now being called the “mother of all short squeezes.”
Rally Fizzles
The April 9 rally has quickly fizzled and given back much of the gains. In afternoon trading on April 10, the Dow is down nearly 2,000 points and the Nasdaq has fallen 1,000 points, or more than 5%. The selloff is resuming now that most traders on Wall Street have covered their short positions and markets assess the outlook for the U.S. and global economies.
Traders at hedge funds, investment banks, and brokerages who had bet on continued share price declines piled up a record number of short bets against the U.S. stock market ahead of President Trump walking back the bulk of his tariffs. As the market suddenly rose on April 9, those traders were forced to buy stocks rapidly to get out of their bets against the market and limit their losses, leading to a surge of buying and the huge rally that transpired.
Bank of America (BAC) notes that on April 9, short positioning on Wall Street was almost twice as much as the size seen during the onset of the Covid-19 pandemic in 2020. In all, 30 billion shares changed hands on the afternoon of April 9, the heaviest volume day on record, according to FactSet data.
Is the Vanguard S&P 500 ETF a Buy?
The Vanguard S&P 500 ETF (VOO) which tracks the movements of the benchmark U.S. stock index, has a consensus Moderate Buy rating among 506 Wall Street analysts. That rating is based on 412 Buy, 86 Hold, and eight Sell recommendations made in the last three months. The average VOO price target of $570.91 implies 18.83% upside from current levels.
