What Happened?
Shares of online used car dealer Carvana (NYSE: CVNA) jumped 11.7% in the afternoon session after the company reported strong first quarter 2025 results which significantly beat analysts' revenue and EBITDA expectations. They sold nearly 134,000 retail units (used cars), up 46%, and revenue climbed 38%, showing that buyers are still flocking to Carvana's online model. Margins looked strong too, with profit per sale improving and a nice boost from a revaluation in one of their investments. We think this was a solid print, but expectations were likely sky-high given the stock rocketed 50%+ over the past month.
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What The Market Is Telling Us
Carvana’s shares are extremely volatile and have had 49 moves greater than 5% over the last year. But moves this big are rare even for Carvana and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 15 days ago when the stock gained 7.1% on the news that President Trump clarified that he had no intention of removing Federal Reserve Chair Jerome Powell, a statement that helped calm markets. Earlier remarks had sparked fears of political interference in decision making at the central bank. With Trump walking back his earlier comments, investors likely felt more assured that monetary policy decisions would continue to be guided by data, not drama. That kept the Fed's word credible, and more importantly, gave investors a steadier compass to figure out where rates and the markets were headed next.
Adding to the positive news, the president made constructive comments on US-China trade talks, noting that the tariffs imposed on China were "very high, and it won't be that high. ... No, it won't be anywhere near that high. It'll come down substantially. But it won't be zero."
Also, a key force at the center of the stock market's massive two-day rally was the frantic behavior of short sellers covering their losses. Hedge fund short sellers recently added more bearish wagers in both single stocks and securities tied to macro developments after the whipsaw early April triggered by President Donald Trump's tariff rollout and abrupt 90-day pause, according to Goldman Sachs' prime brokerage data. The increased short position in the market created an environment prone to dramatic upswings due to this artificial buying force. A short seller borrows an asset and quickly sells it; when the security decreases in price, they buy it back more cheaply to profit from the difference.
Carvana is up 45.9% since the beginning of the year, and at $291.18 per share, has set a new 52-week high. Investors who bought $1,000 worth of Carvana’s shares 5 years ago would now be looking at an investment worth $2,909.
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