Premium"Hedge When You Can, Not When You Have To" - Nomura Reflects On What 'Everybody' Is Thinking As 'Trump Collar' Unwinds
From the big picture perspective, Nomura cross-asset strategist Charlie McElligott notes that it’s just been a pure play of what's been a sentiment swing “from left-Tail to Tight-Tail” for a few months now, really highlighting the market's (over) fixation on hard left-Tail outcome-potentials around the Tariff tantrum, and totally under-pricing Right-Tail possibilities, especially off the back of mechanical reallocation flows as we correctly anticipated the rVol collapse.
From Left-Tail To Risk-Tail...
The “Trump Collar” helped to compress then collapse realized Volatility off the most extremely 100%ile levels April / May, as the market reconditioned to his reaction function (selling the call at the highs with emboldened tariff rhetoric, but long the put into downside scares)…This vol compression turned outright vol melt thereafter, as the Administration has now fully-embraced the pivot back towards Trump 1.0 “run-hot” policy w/ passage of fiscally stimulate OBBB (and away from that initial Trump 2.0 foray into spending cuts)
Now, the market has mentally moved-past the subject of “Tariffs” as trade deals are rolled-out, and in some cases, avoided “worst case” previously assumed levels and their potential market negative impact on Inflation…Trump is now seemingly backing-off the “Sell Calls” portion of that prior “Trump Collar,” and instead, just GUNNING-IT AT HIGHS
This “from Left-Tail to Right-Tail” has been further aided by the five consecutive downside surprises in Core CPI, as the initial “worst fears” of the crowded market narrative of tariff-driven “Stagflation” were then avoided, downside melted, and the undercapture by investors of the Spot Equities rally eventually saw Right-side grabbing / hedging into Upside, which further created squeeze fuel provided by massive leveraged ETF demand from Retail
The low bar for EPS growth in 2Q EPS after the Tariff freakout so far has then rationally been met with high “beat” rate…while now too you’re seeing earnings revision breadth really improve on 2026 EPS, as analysts and strategists now chase the market too
As markets melt-up and rVol is smashed, FCI is easing powerfully (helping Consumer Conf HIGHER) and creating a positive wealth effect impulse in-turn, thanks to Equities / Crypto rallying, plus even the ongoing high returns on Cash
Growth still holding nicely above 2%, nominal GDP still in that 5% universe with “full employment” (recent string of positive surprises in Initial Claims, Continuing Claims and NFP headline) and even the last upside surprise in recent Retail Sales shows the Consumer holds serve
All-in-all, we see SPX making highs at the same time that betting-markets are saying “2025 Recession” -Odds are making lows of the year
