Investing

Rivian (Nasdaq: RIVN) Leads a Pack of Heavily Shorted Stocks that Soared on Friday

Eric Bleeker

Published: August 24, 2024 4:13 pm

Last Updated: August 24, 2024 4:27 pm

Friday could be the day the ‘high interest rate era’ of the market ended. Jerome Powell issued the keynote at the Fed’s annual retreat in Jackson Hole and said “the time has come for policy to adjust.”

The comments boosted the stock market in general, but some segments of the market did better than others. For example, while the S&P 500 rose on 1.15% on Friday, the small cap-focused Russell 2000 surged by 3.19%. Maybe the biggest pocket of ‘winners’ from Jerome Powell’s announcement was heavily shorted stocks.

Summary

• Heavily shorted stocks were the market’s biggest gainers on Friday.
• As the Federal Reserve signals interest rates are coming down, areas of the market to watch include small cap stocks, EV stocks, and housing stocks.
• If you’re looking for some of the market’s highest upside stocks that could see big gains as interest rates come down in the next year, make sure to grab a complimentary copy of our “The Next NVIDIA” report. A software stock featured in the report that we believe has 10X potential has surged 20% in the past month and could attract more attention as interest rates decline.

Heavily Shorted Stocks Lead Friday’s Market Higher

Looking down the list of Friday’s top-performing stocks in the broader technology space, a common theme is very high short interest. Here’s a selection of some of Friday’s biggest gainers.

Not every stock that saw large gains on Friday is heavily shorted. For example, Workday (Nasdaq: WDAY) jumped by 12.5% despite few of its shares being sold short. Yet, the company was soaring thanks to outstanding earnings it issued rather than macroeconomic events like changing interest rate expectations.

Why Rivian and Other Shorted Stocks Soared

There are a few key categories to watch as the Federal Reserve begins cutting interest rates.

Small Cap Stocks: On days the market has soared this summer due to interest rate news, small caps have outperformed large cap stocks. A key reason for this is that small caps have underperformed recently, and the expectation is lower rates could lead to more consumer spending and cheaper debt financing that will disproportionately benefit small cap stocks. An important area to watch in the weeks ahead is whether the rally in small cap indexes like the Russell 2000 continues.

After optimism for rate cuts built on July 10th, the Russell 2000 proceeded to rally 11.5% across just four trading days. However, those gains evaporated in early August. The Russell 2000 is now back near recent highs and may continue rallying as the market is now pricing in more than 2% of interest rate cuts by the end of 2025.

EV Stocks: Both EV and renewable energy stocks have two common factors: 1.) They’re generally heavily shorted and 2.) They require incredible amounts of capital that will become cheaper as interest rates rise. This combination of lower interest rates being a business driver and the companies having heavy short interest has caused these stocks to skyrocket whenever the market begins pricing in added interest rate cuts.

Beyond Rivian and Lucid, a number of heavily shorted stocks in the EV and renewable energy space saw large gains on Friday. EVgo (Nasdaq: EVGO) has 28% of its shares sold short and jumped 12.7%. Aehr Test Systems (Nasdaq: AEHR) has 21% of its shares sold short and gained 8.4% on Friday.

Housing Stocks: Another category that saw big gains on Friday is housing stocks. Beyond Redfin, stocks like OpenDoor (Nasdaq: OPEN) saw big gains on Friday. OpenDoor has 13% short interest and gained 11.6% on Friday.

Data from Zillow had interest rates peaking at more than 7.6% last year. As of Saturday, the national 30-year fixed mortgage rate is down to 5.93%. Declining interest rates along with policy proposals from Democratic Presidential candidate Kamala Harris could lead to a boom in new residential construction. That would be a big benefit to software companies like Zillow and Redfin along with homebuilders and other companies that are suppliers to the real estate industry.