Signs have emerged that short covering has been at work during the latest stock market rally, raising questions about the sustainability of the leg up. The tech-heavy Nasdaq Composite has climbed nearly 8% year to date as beaten-down growth names staged a big rebound. Meanwhile, Goldman Sachs’ so-called “Most Short” basket, consisting of 50 US stocks with the biggest short interest, has gained more than 20% in 2023. “The equity market rally since the lows in October has for the major part been driven by short covering,” Barclays strategists said in a note Wednesday. “Fast money investors have closed equity shorts, but exposure remains low.” On Monday when the Nasdaq jumped 2%, technology stocks saw the largest one-day notional amount of short covering since June, according to Goldman’s prime brokerage data. Goldman said the short covering activity was led by semiconductor stocks, tech hardware and IT services stocks. The VanEck Semiconductor ETF surged 4.7% Monday for its best day since November. Short covering occurs when a short seller buys back shares in order to close out an open short position — returning borrowed shares — in an attempt to limit losses that also drives further drive up the price of the underlying security. Many believe that a more sustainable rally would come from an improvement in corporate earnings. However, this earnings season so far has been largely disappointing, with the percentage of companies beating analyst estimates lagging the historical average. Among the most shorted stocks were crypto-related names Coinbase and Microstrategy, which rallied 50% and 73%, respectively, as bitcoin prices recovered from recent lows. Meme stocks AMC and GameStop still had an elevated level of short interest. Retail traders have pushed up GameStop more than 11% this year, while AMC has climbed more than 30%. Battery cell technology company QuantumScape, and autonomous driving software and hardware maker Luminar Technologies, were also included in Goldman’s most-shorted basket. — CNBC’s Michael Bloom contributed reporting.