Nomura sees low risk of an S&P 500 crash

Investing.com -- Nomura Securities strategist Charlie McElligott believes the recent pullback in the S&P 500 is unlikely to lead to a broader market crash, as investors have already begun reducing risk in a controlled manner.

The S&P 500 has fallen about 6% since late February, with the CBOE Volatility Index climbing roughly 10 points. 

However, McElligott said in a note, reported by Bloomberg, that the increase in volatility has been gradual rather than the sharp spikes seen in previous market downturns. 

In a note, the strategist attributed it to "appropriate mechanical de-allocation, deleveraging and rebalancing trades that remove accelerant flows which then contribute to crash conditions."

Systematic investors, including trend-following funds and volatility control strategies, have been cutting exposure during the pullback, helping to prevent a more extreme market reaction. 

"Positioning cleanse is well underway from this particular unemotional sources of de-risking, and that is constructive," McElligott said.

The S&P 500, which had rallied over 53% in the past two years, is down about 2% in 2025, pressured by concerns over stretched technology valuations, slowing economic growth, and escalating trade tensions. 

Despite these challenges, McElligott expects volatility to decline in the coming weeks unless an unexpected shock disrupts market stability.

One area of concern remains leveraged hedge funds and exchange-traded funds, which have been offloading positions in last year’s top-performing stocks. 

"Nearly 80% of the assets under management remain focused in tech leadership and animal spirits," McElligott warned, noting that this could create a negative feedback loop if selling pressure intensifies.