Behind Stocks’ Big Bounce: Sudden Short Covering, Low Liquidity
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The spectacular stock market rebound came with a lack of any real conviction as a look beneath the surface reveals aggressive short covering and very low liquidity despite massive trading volumes.
Traders rushed to cover short positions they accumulated amid the market downturn after President Donald Trump’s tariff reprieve on Wednesday. Meanwhile, top-of-book liquidity — how much notional you can trade at the price shown on the screens — on S&P 500 futures was sitting at an all-time low according to Goldman Sachs Group Inc.’s prime desk, exacerbating the market moves. The S&P 500 surged 9.5% — its best day since October 2008. Contracts on the benchmark fell 2.1% at 5 a.m. in New York.