U.S. stocks are facing a notable decline, prompting increased selling activity from volatility-sensitive funds.

In the last two weeks, these funds have offloaded around $83.6 billion in U.S. equity futures, marking an 'extremely rare' level of selling, as noted by Nomura's Charlie McElligott.

The Cboe Volatility Index has surged to its highest point in over 16 months, signaling heightened market uncertainty.

The S&P 500 has declined approximately 5% from its record high on July 16, while the Nasdaq Composite has seen a 10% drop from its peak last month, suggesting a potential market correction.

The future selling behavior of these funds will largely depend on market volatility in the upcoming weeks, with a 1% daily change in the S&P 500 potentially triggering an additional $15 billion in selling.

Other volatility-sensitive strategies, such as trend-following commodity trading advisers (CTAs), have recently sold about $12.5 billion and could ramp up their selling to $36 billion if the S&P 500 continues to decline.

On the other hand, smaller daily changes in the market could lead these funds to reverse their positions, resulting in the purchase of approximately $14 billion worth of stocks.

Historically, volatility control funds have been buyers of equities during stable markets, but they are currently selling due to economic concerns and uncertainties surrounding tech earnings.