Battle Between Hedge Funds and Day Traders Creates Record Volume

How wild was the action in the stock market on Wednesday? Wildest on record, if you judge by volume of shares traded.

More than 23.6 billion shares of U.S.-listed equities changed hands, the most in Bloomberg data going back to 2008. The spike stands out even though volumes have been heavy since the pandemic began roiling markets last year, averaging 14.4 billion a day in 2021 before yesterday and 10.9 billion last year. That compares with an average of less than 7 billion shares in 2019.

The frenzy of trading comes amid an epic squeeze in heavily shorted companies being bought by day traders capitalizing on overcrowded hedge-fund short positions. Hedge funds are slashing stock exposure at the fastest rate in more than six years as they covered money-losing short sales and trimmed bullish bets. In the four sessions through Tuesday, total outflows from the market reached the highest level since 2014, according to Goldman Sachs Group Inc.’s prime brokerage.

“When you have a sideshow like the short squeeze that we’re seeing now going on for a period of time, it becomes self-fulfilling,” said Arthur Hogan, chief market strategist at National Securities Corp. “The more people that notice that stocks like GameStop and Nokia and BlackBerry are going higher every day in a parabolic fashion, that draws more people into the same game. So the sideshow takes over.”

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