I wouldn’t call it “calm.” “Stability” would be a misnomer too. But the bleeding stopped for risk assets on Tuesday. Temporarily, at least.

In all likelihood, market participants took a shot at selling outlandishly rich vols, which apparently means at least some folks were in fact “able to get the risk budget to do the trade in a size that matters,” as Nomura’s Charlie McElligott put it earlier this week, while wondering aloud if the scope of the just-witnessed VaR shock might limit traders’ ability to indulge the muscle memory that says meaningful vol expansions are a slam-dunk sell. (And that’s to say nothing of dealer capacity to facilitate the trades without quoting bid-asks wide enough to drive a semi truck through given the PTSD from the Friday/Monday VIX call stop-in.)

Relatedly, there was surely some downside hedge monetization going through on Tuesday, and that can be self-fulfilling to the extent it helps slingshot stocks. The VIX, which printed a nosebleed 65 (up a ridiculous 42 vols) during the early-week chaos, receded sharply, as did vol-of-vol.

In simple terms: What we didn’t get Monday, we got a little of Tuesday. In more technical terms, recent history teaches that “‘next-day hedge unwind’ blasts following VaR events set off huge recoveries in spot and crunches in vol thereafter,” to quote McElligott again. That’s classical conditioning, and it “reinforce[s] the trading behavior.”

So, the combination of i) Japan’s 1987-style crash and ii) the sudden realization that the carry unwind unleashed by the yen rally marked an epochal shift for the global market infrastructure, conspired to overwhelm the Pavlovian response function at the beginning of the week. By Tuesday, the temptation to exploit the vol expansion was probably too great — indeed, the opportunity probably looked more compelling after Monday’s fireworks assuming, again, that you had the risk budget to take some shots.

Does that mean the worst is over? Well, the jury’s out. We’re just a few sessions into a very challenging month, and do note: The sheer size of the carry trade means the unwind isn’t complete, and won’t be until the yen’s fairly valued. Don’t ask me what fair value is for the yen. I don’t know. A lot depends on the trajectory of US rates, which is to say the evolution of the US economy from here.

“Soft[er] US inflation, combined with a hawkish move by the Bank of Japan, is driving a reversal of the JPY carry trade, which is underpinning risk-off sentiment for the Nasdaq 100,” SocGen’s equities strategists said Tuesday.

“While JPY is still far from fair value, CFTC positioning shows a majority of the shorts were reversed in July,” SocGen’s analysts added, in the same brief note.

Weighing in just ahead of this week’s rollercoaster, former Goldman FX head Robin Brooks said yen positioning’s probably back to neutral. “Yen shorts had already halved as of Tuesday last week,” he remarked. “[It’s a] safe assumption that the remaining yen shorts got closed out on Friday.”

Do note: Tuesday’s comeback on Wall Street faded meaningfully into the close. The S&P trimmed gains to around 1%. And that brings us quickly full circle. Don’t call it “stability.” But at least the bleeding stopped. If perhaps only for a day.