Wall Street's largest trading desks say the extremely bearish positioning in equity markets going into the end of the quarter was the main driver of Tuesday's big rebound in US stocks, rather than a shift in investor sentiment over the Iran war. The S&P 500 Index surged 2.9% on Tuesday, the sharpest gain since May. Traders at Goldman Sachs Group Inc. and JPMorgan Chase & Co. suggest this was mainly a squeeze: the sudden bounce was more about the unwinding of negative positioning by various market participants.

Hedge funds and trend-following funds such as CTAs had been aggressively shorting stocks. Trading desks also projected that pension funds were poised to direct large month-end flows toward buying equities, while the pressure point of short gamma among options dealers would roll off with Tuesday’s expiry, providing a further bullish impulse. In short, fast money was just waiting for a spark to light the fuse for a rally and Trump’s reference to the war potentially ending within two to three weeks proved enough.