NEW YORK - A sharp drop in U.S. stocks is provoking selling from volatility-sensitive funds, exacerbating a selloff that has already brought the Nasdaq Composite into correction territory.
More recently, they have begun selling, as worries over the economy and tech earnings rattle investors: volatility control funds have dumped about $83.6 billion of U.S. equity futures over the last two weeks, according to Charlie McElligott, managing director Cross-Asset Strategy at Nomura.It's "extremely rare" for the funds to sell in that size, McElligott said, noting that they have only recorded a sharper pullback in their equity allocations 3.
A 1% daily change in the S&P 500 over the next two weeks could spur another $15 billion of selling in that period, while daily 0.5% changes would stop the bleeding and see these funds turn buyers to the tune of about $14 billion, McElligott said.