Earlier this morning, Nomura's Charlie McElligott noted something which in retrospect was quite prophetic: the cross-asset strategist highlighted that his Risk Parity model showed that the market's most important strategy is in "de-risking" mode as the economic cycle turns sharply:

In a positioning confirmation / “nod” then to this growth- and inflation- slowdown scenario, it is finally worth noting that we see our Risk Parity model having added enormous notional size in global Government Bonds (USTs and JGBs) over the past month, against very large selling of global Equities and Credit.

The implication - and confirmation - judging by today's market, is that the trade was a long way from finished, looking at the recent risk parity deleveraging in equities...

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... offset by buying of gov't bonds.

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But while ongoing (relatively slow) risk parity deleveraging may explain the pressure on the market over the past month, the reason for the sharp waterfall in US stocks just after 12 pm ET...

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... has to do with another systematic "trader" type in the market: namely the much faster CTAs, or managed futures funds, which do nothing but chase market momentum once it has been established.

As McElligott writes in a follow-up note the Nomura CTA Trend model "is again deleveraging massive notional in long US Equities expressions across SPX, RTY and NDX live".

This is more about performance and year-end timing than the curve inversion / “growth scare” story…but that certainly is not helping the sentiment here either, as stops are being triggered across fundamental and rules-based strats.

More importantly, McElligott identifies the specific deleveraging "trigger" behind the S&P waterfall liquidation, which was due to a massive CTA selling order, which was unleashed once deleveraging stops were hit in the S&P. Specifically, the SPX model was triggered to sell down at 2,763 with $32.8B notional for sale, reducing CTAs from "+100% Max Long" down to "+65% Long".

One the selling program hit, it was lights out and the number of stocks that were sold off all at once, as measured by the NYSE Uptick-Downtick index, reached a negative 1,459, which was among the 10 worst readings of the year. Meanwhile, as Bloomberg's Andrew Cinko writes, the breadth of the S&P 500's decline sits at 88% currently, ranking it among the worst of the year, though remember that in February and April it was well north of 95%. So there's plenty of room for it to get uglier...

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... and it very well might: if the S&P drops another 20 or so points, as the next sell point just under 2,711, where -$32.4B additional notional for sale, with “Max Short” level now lower at 2574, at which point the market would be flooded with -$122B notional in selling volume.

And here are the CTA trigger points visually.

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