Increasingly, funds are concerned they might miss the proverbial boat, and one bank’s client conversations suggest market participants are tired of fighting the equity rally.

“Their short books are killing them, while their longs are telling them to get more constructive and push net exposure back up,” Nomura’s Charlie McElligott said Friday.

Although there’s a lot of nuance (what with Fed officials now messaging that rate hikes may not be done and pricing for the June meeting responding accordingly), the tail risks aren’t realizing. The debt ceiling is likely to be resolved in fairly short order, the regional bank crisis is ongoing, but it feels more… well, regional, and less “contagious” and it helps when “name brands” on are bubble vision talking constructive about equities.

“You can feel it turning, as any nascent dip is bought and any vol squeeze is sold,” McElligott went on. Note the green annotation in the figure below. That’s “bid” upside.

“Call skew rank is picking up rapidly after months of collapse, as some folks nervously grab back into the call wing,” Charlie wrote.

What, some might fairly ask, has changed? I suppose most readers can answer that question. The official (i.e., D.C.) response to March’s banking stress plainly indicated that even as the Fed is keen to preserve its “higher for longer” credibility, policymakers are acutely aware that SVB was a “we broke something” moment.

Do note: SVB wasn’t itself systemic (notwithstanding the potential for a bunch of startups to miss payroll), but what it represented might’ve been. Specifically, widespread awareness of accumulated AFS and HTM losses on banks’ books coupled with the sudden realization that government money funds are a 5%-yielding alternative to uninsured deposits at “risky” banks, threatened to become a self-feeding doom loop. That couldn’t be countenanced. And that’s to say nothing of the looming (and possibly secular) profitability crisis for some lenders.

“The perception has clearly been that the regional banks ‘profitability crisis’ was the Fed accident that broke the back of [their] willingness to take pain and continue to hawkishly tighten, and instead pulled forward the conditions for a cycle-turn, which would then push us closer to the ultimate pivot back towards policy easing, with rates moving lower as a further tailwind for secular growth stocks and valuations for index heavyweights,” McElligott wrote.

That turning of the tide prompted a “wholesale rethink” towards stocks and, just as importantly, emboldened market participants to start shorting vol again. You can see that in the stark juxtaposition between the two figures shown above.

It’s a familiar lesson retaught: When policymakers panic, it’s a green light for short-vol risk appetite.