Relief Rally or Short Covering?

The major averages spiked to their highs of the day after Bloomberg News reported, citing sources, that Treasury Secretary Scott Bessent told a group of investors Tuesday that the trade war with China was unsustainable. According to the report, Bessent also said that a deal between the two nations was possible. A relief rally is characterized by a rise in securities prices that acts as temporary relief from broader selling pressure. Relief rallies generally are seen during a secular bear market. One can be triggered by slightly good news, with short-sellers helping push the stock higher by covering their positions. A short covering rally, or short squeeze, occurs when the price of a stock suddenly increases unexpectedly, forcing short sellers to buy back their borrowed shares to avoid further losses. This buying activity then drives the price up further, creating a self-reinforcing cycle.