US CPI cools down more than expected, short sellers panic buy, small-cap stocks achieve best single-day performance of the year.

On Tuesday, the US October CPI data showed that inflation cooled more than expected, and it also fell significantly from September. This has led the market to expect that the Federal Reserve will basically end this round of rate hikes and increase expectations for earlier rate cuts in the future. Investors who are afraid of missing out have been buying actively, while the shorts have been scrambling to cover their positions, helping to drive a strong rebound in US stocks. A basket of stocks that were heavily shorted, as compiled by Goldman Sachs, surged 6.8% at one point on Tuesday, and although it gave back some of the gains, it still easily outperformed the broader market. As of Tuesday's close, the Russell 2000 small-cap index soared 5.4%, marking the largest single-day gain this year. Popular shorted stock Beyond Meat closed up nearly 5.5%, and Maxeon Solar Technologies surged over 12%. Recently, the stocks that were heavily shorted have been shaking off their lackluster performance from the past few months. The gains on Tuesday were widespread, with the Nasdaq rising nearly 2.4% and the S&P 500 index gaining over 1.9%. However, the stock prices of high-quality companies such as Microsoft, Alphabet, and Apple did not perform as well as those heavily shorted stocks. Industry insiders pointed out that the above-mentioned divergence indicates that some investors are preparing to cover their short positions, which often pushes up stock prices. People are panicking to close their positions. Once most of these short positions are covered, it may be a sign that the upward momentum will weaken. Some analysts also pointed out that investors are becoming increasingly fearless of risks and have a strong fear of missing out, which prompts short sellers to buy back stocks to cover their short positions. After experiencing three consecutive months of decline, the US stock market rebounded strongly in November. From historical statistical data, November is usually the strongest month for the US stock market performance. Looking at a longer time frame, it is also usually the beginning of a two-month or six-month upward cycle.