“It feels to me like a short vol trade in rates,” Nomura’s Charlie McElligott said Friday, sketching the contours of his year-end view.

McElligott is, in a word, constructive. It’s important, I think, to differentiate between the kind of staid commentary that emanates from sell-side research departments and tactical strategizing from the sales and trading side. I won’t elaborate other than to say I generally prefer dynamic, lively commentary.

Charlie cited soft data (outright in the global context and incrementally in the US) and the long odds of any meaningful policy escalations from the developed market central banks that matter between now and the new calendar. He also noted that “one data release isn’t going to shift market-implied rate path probabilities.”

It’s very unlikely (and that’s an understatement if market pricing is any indication) that the next round of inflation data in the US will put a December Fed hike back on the table. It’d take an anomalous re-escalation from the CPI series to get next month’s meeting anywhere near a coin toss (from basically no odds currently).

Given all of that, rates vol is “likely gonna melt,” McElligott suggested, before segueing neatly into the corollary: Bleeding rates vol would be propitious for US equities.

“I believe it’s likely back to ‘momentum’ and muscle memory on what’s worked, which means a likely grinding move higher after the recent massive exposure slash and net down,” Charlie wrote, referencing large exposure reductions across both discretionary and systematic cohorts from August through October.

US stocks are hostage to rates. It’s no coincidence that last week’s near 6% surge for the S&P (and a nine-session rally for the Nasdaq 100) played out alongside a dramatic reversal for long-end yields, which plunged early this month.

McElligott pointed to big outperformance for a Nomura US “crowding” factor in the presence of the suddenly bullish tone in duration (sans Thursday’s hiccup), before reminding market participants about what’s worked.

“‘Long mega-cap tech / cash generating / quality / secular growth’ and ‘short cyclicality / leveraged balance sheet / small-cap / high default & refi risk’ is the playbook that’s gotten people their performance this year,” he said. “And it looks like smooth sailing between now and year-end [on] the potential re-gross into legacy positioning now that broad exposures and systematic positioning have gotten appropriately clean of prior excesses.”