Financial experts say the intense stock market selloff driven by volatility-focused investment funds appears to be winding down, which could pave the way for U.S. stock market gains if trading turbulence decreases in the weeks ahead.
Tensions between the United States and Iran, along with climbing oil costs, have created numerous reasons for investors to pull money from stocks. Automated trading systems that mechanically dump shares when market uncertainty increases have been a major driver of the selling pressure.
Investment strategies tied to volatility levels, which modify their stock holdings based on market risk assessments, have become increasingly common in recent years. While these funds control relatively small amounts compared to the entire market, financial analysts emphasize their importance since they purchase stocks during rallies and sell during downturns, potentially magnifying price movements in both directions.
These approaches, encompassing volatility control funds and commodity trading advisers (CTAs), sold off $24 billion worth of stocks in the previous week, pushing their total net sales since early March to approximately $108 billion, based on Nomura data. The combined assets under management for these strategies, including risk-parity funds, total around $1 trillion or more, according to Nomura estimates.
This selling activity has reduced these strategies’ stock market exposure to some of the smallest levels seen in recent years, with historical data showing only 20% of past periods had lower exposure levels, Nomura reports.
“The outlook is turning more neutral, but not yet a tailwind,” said Joanna Wang, Nomura’s cross-asset and equity derivatives strategist.
“If volatility picks up from here, there’s still meaningful selling capacity in the system,” Wang explained.
These investment approaches respond to actual volatility measurements from the past month or longer periods. Even though the Cboe Volatility Index (VIX), which tracks trader expectations for future market fluctuations, has declined, these backward-looking volatility measures remain near their peak levels since the tariff-related market disruption in April 2025.
The S&P 500’s one-month historical volatility currently sits at approximately 21%, close to its highest point since mid-May 2025, and more than 5 percentage points above its 20-year average.
For market optimists, there’s a clear positive sign: since stock exposure has already been dramatically reduced, these funds have much less ammunition for additional selling.
“We’re moving past the steepest selling,” Wang noted.
“Strategies like volatility control and CTAs have already taken a lot of risk off the table,” she continued.
If volatility remains at present levels or continues declining through late April, Nomura’s forecasting models suggest systematic strategies might become net purchasers of roughly $20 billion by early May.
Conversely, if volatility increases significantly, these strategies could potentially sell an additional $48 billion in stocks by the end of April, according to Nomura projections.
While the dollar amount of this selling activity is relatively small compared to the approximately $55 trillion total value of the S&P 500 index alone, analysts emphasize these funds deserve attention due to when and how they execute their market transactions.
