You could argue that stocks should’ve been meaningfully lower on the back of a warm US inflation report that saw one of the CPI-derived “supercore” measures print the largest MoM increase in a year.

But by noon in the US on CPI day, the S&P and the Nasdaq were mostly unchanged. Although yields were indeed cheaper ahead of the afternoon 30-year sale, 7bps actually counted (past tense) as a relatively pedestrian move in America’s “penny stock” rates complex.

Just an hour or so after the original version of this article was published, a lackluster result for the above-mentioned long bond auction triggered a sharp move higher in yields, which in turn undercut stocks. That underscored the notion that equity resilience depends in no small part on the bond selloff not re-escalating.

In a Thursday note, Nomura’s Charlie McElligott described a “meaningful risk of a ‘pain trade’ higher due to performance and positioning realities in the equities space YTD.” Recall that discretionary investors largely missed the boat during the spring melt-up, but eventually jumped aboard the moving train (to mix transportation metaphors) in late-July. Their timing was bad.

“Nets got too long in late-summer and brutally ahead of the peak of the ‘FCI tightening tantrum’-induced wobble, which accordingly saw longs reduced, shorts added and exposure slashed,” Charlie said.

Now, with stocks stabilizing as bonds try to sustain a rally, nets are again “too tight, with broad equities exposures having been reduced sharply while beta is grinding powerfully higher over the past few days,” McElligott went on. The figures above help illustrate the point.

The implication: “Folks who ‘don’t have enough market on’ could be forced-in and buying higher levels.”

That’s the “buyers are higher” dynamic, and it’s worth noting that if the daily range of outcomes for spot can stay reasonably well-behaved, vol control would be a large notional buyer.

A market that trades in a 50bps range on either side would create a re-allocation bid of between $20 billion and $40 billion, on Nomura’s estimates.

As ever, there are a lot of “ifs” inherent in the above, but the point is just that the recent rebound in equities is trying to extend contingent upon cooperative bonds. And in light of softer Fed rhetoric, it’ll probably take more than a forgettable CPI release to pull the rug out again.

“Despite upside surprises in PPI and CPI these past two sessions, equities refuse to meaningfully selloff,” McElligott added, before suggesting the biggest risk to the Santa rally setup might just be that “it’s increasingly getting crowded, and could thus easily go ‘wrong-way’ with weak hands moving into the trade who may tap at the first signs of reversal.”