Stocks were supposed to rally if Nvidia delivered another blockbuster set of results.

Nvidia held up its end of the bargain, but tech stocks nevertheless tumbled on Thursday ahead of Jerome Powell’s hotly-anticipated Jackson Hole address.

What was behind the selling? Spoiler alert: Probably systematic de-leveraging.

Regular readers will recall that vol control strats accumulated a mountain of equity exposure over the course of a summer melt-up characterized by a steady grind lower in realized vol. The result: A glaring asymmetry, where those strats would be (far) larger sellers on meaningful spot movement than they would be buyers in an unchanged market. Well, spot’s been moving around a little and in an ironic development, the pre-Nvidia rally might’ve condemned equities to a disappointing session the following day.

“Due to the ‘poor man’s crash-up’ move [on Wednesday] as well as the fuel from the week-long, high-conviction rally into the NVDA print… the expanded index range from Wednesday’s +1.1% move actually meant that vol control funds needed to de-allocate,” Nomura’s Charlie McElligott said late Thursday. On Wednesday afternoon, Nomura’s models tipped nearly $20 billion for sale today.

Again, this comes on the heels of a summer drift during which realized vol was on a glide path lower.

“SPX 3m rVol had a 10-handle on it and we were only seeing months of max 50-60bps daily moves,” Charlie went on to write, reminding folks that the “very long impulsive reallocation buying into equities over the past six months against a very low base vol risked a dynamic where it wouldn’t take a large vol squeeze to elicit a much larger sell flow out of the vol control space.”

On Thursday, we got that sell flow. The figure below illustrates the point and gives you some perspective.

That’s a 2%ile single-session de-allocation flow on a three-year lookback.

That mechanical exposure purge singlehandedly took vol control’s equity allocation down to the 84%ile from the 95%ile a day prior, on Nomura’s estimates.

“I’m quite confident that much of the flow behind the seemingly counter-intuitive pullback” post-Nvidia originated “out of the target vol space,” McElligott remarked.