At first blush, the biggest rally in U.S. stocks in more than 10 months suggested investors were suddenly filled with optimism on Tuesday that the Iran war would soon end. Still, there was something else at play that obscured how confident investors really were that peace was on the horizon: a massive short squeeze.

Goldman Sachs Group Inc.’s basket of the 50 shortest stocks rose 7.1% and more than doubled the S&P 500 index for its second-biggest rally in nearly a year. An index of profitable technology companies rose 6.6%.

Traders at Goldman Sachs and JPMorgan Chase & Co. said headlines suggesting both the US and Iran were looking for a way out of the months-old war triggered a rush to dump bearish bets. According to Jefferies Financial Group Inc., Citigroup Inc. And bets against companies in the S&P 500 rose to a three-year high, according to Jefferies Financial Group Inc., with the number of stocks hitting a record, as the market outlook grew darker, according to data compiled by U.S.-listed exchange-traded funds.

“Some investors were aggressively betting on another down leg in the S&P 500, but as volatility moderated and sentiment improved they rushed to close those positions,” said DC Mularkey, managing director of SLC Management. “Short sellers were vulnerable for a while, but with some signs of an off-ramp, markets rebounded quickly.”

Hedge funds and trend-following funds such as CTAs are aggressively shorting stocks. Trading desks also projected that pension funds are poised to direct large inflows towards equity purchases at the end of the month, while a short-gamma pressure point among options dealers will close with Tuesday’s close, providing further bullish impetus.

In short, fast money was just waiting for a spark to light the fuse for a rally, and US President Donald Trump’s reference to a war likely to end in two to three weeks proved enough.

The Nasdaq 100 index jumped 3.4% on Tuesday, as the Magnificent 7 group of tech megacaps added more than $700 billion in value, the third-biggest one-day gain since 2020. The S&P 500 rose 2.9%. Risk-on momentum continued Wednesday, with S&P 500 futures up 0.8% and Europe’s main equity gauge adding 2.5% at 7:43 a.m. in New York.

“Investors have essentially been counting on a rapid off-ramp since the start of the war, but I think it’s important from a market or global economy perspective to define what a true clearing event actually is in order to reassess risk and remove bearish barriers,” wrote JPMorgan industrials sector sales specialist Paige Henson. “How do we define this ‘end’ as it relates to what we collectively care about for stocks and the path forward for the global economy?”

Volume in stocks traded on Tuesday failed to match the enthusiasm seen at index levels. Traders at Goldman rated Tuesday just four out of 10 in terms of overall activity.

On Goldman’s derivatives desk, traders described seeing “big hedges unwound” in the S&P 500, Nasdaq and VIX and ETFs. “Positioning is being eliminated as the day progresses,” trader Shayna Peart observed.

To sustain this upswing, investors may need to look for more detail and clarity on the path to de-escalation. White House press secretary Carolyn Levitt said Trump will give an address at 9 p.m. Wednesday, giving an update on the war.

Traders have questions about how soon the Strait of Hormuz could reopen to shipping and how deep and long the drop in oil prices could be. Meanwhile, earnings season is approaching, where the market will look for signs of first-quarter results and how they affect the broader economy.

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