With each passing day since President Donald Trump‘s sweeping tariff announcement last week, a growing sense of unease had begun to pervade Wall Street.

As stocks plunged and even the safe haven of U.S. Treasurys were selling off, investors, executives and analysts started to fret that a core assumption from the first Trump presidency may no longer apply.

Amid the market carnage, the world’s most powerful person showed that he had a greater tolerance for inflicting pain on investors than anyone had anticipated. Time after time, he and his deputies denied that the administration would back off from the highest American tariff regime in a century, sometimes inferring that Wall Street would have to suffer so that Main Street could thrive.

“It goes without saying that last week’s price action was shocking to see as the market has begun to rewrite completely its sense for what a second Trump presidency means for the economy,” said R. Scott Siefers, a Piper Sandler analyst, earlier this week.

So it came as a huge relief to investors when, minutes after 1 p.m. ET on Wednesday, Trump relented by rolling back the highest tariffs on most countries except China, sparking the biggest one-day stock rally for the S&P 500 since the depths of the 2008 financial crisis.

Despite a presidency in which Trump has tested the limits of executive power — bulldozing federal agencies and laying off thousands of government employees, for example — the episode shows that the market, and by proxy Wall Street statesmen like JPMorgan Chase CEO Jamie Dimon who can explain its gyrations, are still guardrails on the administration.

Later Wednesday afternoon, Trump told reporters that he pivoted after seeing how markets were reacting — getting “yippy,” in his words — and took to heart Dimon’s warning in a morning TV appearance that the policy was pushing the U.S. economy into recession.

Dimon’s appearance in a Fox news interview was planned more than a month ago and wasn’t a last-minute decision meant to sway the president, according to a person with knowledge of the JPMorgan CEO’s schedule.

Of particular concern to Trump and his advisors was the fear that his tariff policy could incite a global financial crisis after yields on U.S. government bonds jumped, according to the New York Times, which cited people with knowledge of the president’s thinking.

“The stock market, bond market and capital markets are, to a degree, a governor on the actions that are taken,” said Mike Mayo, the Wells Fargo bank analyst. “You were hearing about parts of the bond market that were under stress, trades that were blowing up. You push so hard, but you don’t want it to break.”

Typically, investors turn to Treasurys in times of uncertainty, but the sell-off indicated that institutional or sovereign players were dumping holdings, leading to higher borrowing costs for the government, businesses and consumers. That could’ve forced the Federal Reserve to intervene, as it has in previous crises, by slashing rates or acting as buyer of last resort for government bonds.

“The bond market was anticipating a real crisis,” Ed Yardeni, the veteran markets analyst, told CNBC’s Scott Wapner on Wednesday.

Yardeni said it was the “bond vigilantes” that got Trump’s attention; the term refers to the idea that investors can act as a type of enforcer on government behavior viewed as making it less likely they’ll get repaid.

Amid the market churn, Wall Street executives had reportedly worried that they didn’t have the influence they did under the first Trump administration, when ex-Goldman partners including Steven Mnuchin and Gary Cohn could be relied upon.

But this last week also showed investors that, in his mission to remake the global order of the past century, Trump is willing to take his adversarial approach with trading partners and the larger economy to the knife’s edge, which only invites more volatility.

A massive number of hedge fund short sellers rushed to close out their positions during Wednesday afternoon’s sudden surge in stocks, turning a stunning rally into one for the history books.

Traders — betting on share price declines — had piled on a record number of short bets against the U.S. stocks ahead of Wednesday as President Donald Trump initially rolled out steeper-than-expected tariffs.

In order to sell short, hedge funds borrow the security they’re betting against from a bank and sell it. Then as the security decreases in price from where they sold it, they buy it back more cheaply and return it to the bank, profiting from the difference.

But sometimes that can backfire.

As stocks soared on news of the tariff pause, hedge funds were forced to buy back their borrowed stocks rapidly in order to limit their losses, a Wall Street phenomenon known as a short squeeze. With this artificial buying force pushing it higher, the S&P 500 ended up with its third-biggest gain since World War II.

Coming into Wednesday, short positioning was almost twice as much as the size seen in the first quarter of 2020 amid the onset of the Covid pandemic, according to Bank of America. As funds ran to cover, a basket of the most shorted stocks surged by 12.5% Wednesday, according to Goldman Sachs, pulling off a larger jump than the S&P 500‘s 9.5% gain.

And a whopping 30 billion shares traded on U.S. exchanges during the session, marking the heaviest volume day on record, according to Nasdaq and FactSet data going back 18 years.

“You can’t catch a move. When you see someone short covering, the exit doors become so small because of these crowded trades,” said Jeff Kilburg, KKM Financial CEO and CIO. “We live in a world where there’s more and more twitchiness to the marketplace, there’s more and more paranoia.”

Of course, there were real buyers too. Long-only funds bought a record amount of tech stocks during the session, especially the last three hours of the day, according to data from Bank of America.

But traders credit the shorts running for cover for the magnitude of the move.

“The pain on the short side is palpable; the whipsaw we have witnessed the past few weeks is extreme,” Oppenheimer’s trading desk said in a note. “What we saw in tech on that rise was obviously covering but more so real buyers adding on to higher quality semis.”

Thin liquidity also played a role in Wednesday’s monster moves. The size of stock futures (CME E-Mini S&P 500 Futures) one can trade with the click of your mouse dropped to an all-time low of $2 million on Monday, according to Goldman Sachs data. Drastically thin markets tends to fuel outsized price swings. 

Markets were pulling back Thursday as investors realized the economy is still in danger from super-high China tariffs and the uncertainty that daily negotiations with other countries will bring over the next three months.

There are still big short positions left in the market, traders said.

That could fuel things again, if the market starts to rally again.

“The desk view is that short covering is far from over,” Bank of America’s trading desk said in a note. “Our reasoning is that the market can’t de-risk a short in less than 3 hours which provided 20%+ SPX Index downside & major reduction in NET LEVERAGE over 7 seven weeks.”

“No shot it cleared in less than 3 hours,” Bank of America said.