Goldman’s Scott Rubner was right. Markets were, as it turns out, predisposed to pre-trading a challenging September seasonal which typically waits until the back-half of the month to bite.

He was also correct when he warned, on September 4, that any nascent equity pullback “may start to get traction if payrolls are weak.”

Payrolls were weak, and the revisions weaker still. And the downtrade did “get traction.” As the simple figure below shows, we’ve had two bouts of pronounced selling pressure in the space of a month.

Let’s not forget that the holiday-shortened trading week in the US began with yet another vol shock, once again facilitated (exacerbated or both) by a dealer stop-in across a misbehaving VIX options space. On the realized vol front, the fireworks have meaningful implications if sustained. The chart shows 10-day rVol.

The worst week for the S&P in 18 months featured two one-day declines of ~2%. So, yet another meaningful expansion of the outcome distribution. That, in turn, will drag up realized vol, and could be prohibitive for a vol control universe that might’ve otherwise (i.e., if spot equities had remained calm) had more re-allocation buying to do.

One-month rVol had just begun to roll over as the big downtrades and vol spikes from early last month dropped out of the lookback. Regular readers might recall my cautionary remarks from an August 27 piece entitled “Stocks To Get $43 Billion Of Support Over The Next Week. If They Behave.” “We’re building a sample as we go,” I wrote, of the potential for mechanical buying from the target vol crowd. “So, we need stocks to stay relatively calm. Otherwise, we’re just replacing yesterday’s big oscillations with tomorrow’s.” Now it’s “tomorrow.” And we did indeed have more oscillations.

In addition, the persistent to-and-fro — particularly if sessions like September 3 and August 5 are reverberating through vol pods and forcing unwinds from dispersion teams — has the potential to limit risk deployment, which is to say dampen the dip-buying impulse and lessen the instinctual vol-selling that’s part and parcel of modern markets’ penchant for “mean reverting” in no time flat.

If you’re long dispersion, you’re short correlation. Generally speaking, you want micro-driven markets, not macro shocks like the ones we saw this week and during the first week of August.

“We’ve now had two separate vol shocks in a one-month span, with potential implications then on the ability for discretionary traders to re-deploy risk longs and/or fade this vol move,” Nomura’s Charlie McElligott said, adding that “the leveraged pod space is likely being impaired by tighter risk limits and risk budgets, unless they have PnL to play from getting the trade over the past month ‘correct,’ but judging by performance numbers, I’m not sure many have the ammo.”

This is simple: If your business model’s built on leverage, risk management isn’t just important, it’s an existential imperative. When PMs and teams do well, they get more rope (e.g., bigger budgets). When PMs do poorly, budgets get cut and positions get unwound because, again, leveraged firms can’t sustain huge drawdowns. “Folks got de-risked after the August 2-August 5 vol event and then weren’t in position to upside-capture thereafter,” Charlie went on.

Meanwhile, the retail crowd (and just anybody “dumb” enough to express their opinion on markets through low-cost, uncomplicated exchange-traded products) were net sellers of US stock funds over the latest reporting period for the first time in 10 weeks, according to EPFR’s data.

As the figure shows, the outflow was minuscule (bordering on infinitesimal), but an outflow all the same. Those investors exhibited “diamond hands” during August’s tumultuous trade: They happily stepped in to buy the dip. Bullish sentiment in the latest AAII survey was 45.3%, a four-week low.

Coming full circle, this latest spell of turbulence is playing out earlier than it “should” based on the September seasonal, which typically turns challenging about… well, right about now, actually, but particularly during the last two weeks of the month.

The buyback blackout starts in a week, so the corporate bid will dissipate accordingly. That’s another source of plunge protection sidelined, which leaves the vaunted “Powell put” to save the rally. And, more importantly, to save the expansion.