Over the past six or so weeks, I’ve been on at length about re-allocation flows into equities from the vol control universe.

My penchant for verbosity notwithstanding, this actually isn’t complicated. Vol-targeting strategies de-risk and re-risk mechanically based on historical volatility, which is a function of realized moves in the spot price of the underlying, which in this case is the S&P 500.

When the distribution of daily outcomes for spot equities compresses, realized volatility gets “crunched,” if you will, and as it recedes, strategies which allocate based on realized volatility will add back exposure to stocks.

You can calculate realized volatility using any lookback you like. If you use a three-month trailing window, you were still picking up the wild sessions from Donald Trump’s botched “reciprocal” tariff rollout in April until this month, when those sessions began to fall out of the three-month sample. As they dropped from the lookback, the three-month trailing realized vol measure fell, and that very likely triggered more re-allocation flows to equities from volatility-targeting strategies.

Most of you know that. I ran through it last on July 25 in “From Melt-Up To Bubble Watch.” The question is “How much?” What’s the size of that vol-control re-allocation bid? Well, according to Nomura’s Charlie McElligott, about $125 billion over the past month (and nearly $160 billion since the local lows in April).

There’s the annotated infographic from McElligott. It’s notable for a variety of reasons, not least of which is that target-vol exposure tends to look like an escalator on the way up, whereas the re-allocation illustrated on the left looks more like a trampoline.

“Look at these equities long positioning extremes which have been rebuilt from vol-scaling systematics thanks to the realized vol smash,” McElligott remarked, before noting that CTA equities exposure’s back to 100%ile, while retail demand for leveraged ETFs has pushed AUM in that space to new extremes, with meaningful implications for end-of-day rebalancing flows.

The “from-left-tail-to-right-tail” zeitgeist shift was aided by “five consecutive downside surprises in core CPI,” while the “low bar for EPS growth in Q2 after the tariff freakout has rationally been met with a high ‘beat’ rate,” Charlie said.

As the consensus stagflation outcome was avoided, “downside melted” and a chase ensued, he went on. “The undercapture by investors of the rally eventually saw right-side grabbing and hedging into upside.”

In the final act, the melt-up trickled down to the real economy. Financial conditions are “easing powerfully, helping consumer confidence and creating a positive wealth effect,” McElligott wrote. Still-high returns on parked cash are the cherry on the sundae.