Citadel Securities has turned more constructive on US stocks heading into the fourth quarter, arguing that September's selloff already cleared out excess leverage in the market. Strategist Scott Rubner points to five tailwinds — midterm-year seasonality, returning buybacks, cleaner positioning, retail demand and Q3 earnings — as reasons to buy early-quarter weakness, while flagging a hawkish Fed and oil-driven inflation as risks.
Citadel Securities is turning more constructive on US equities for the fourth quarter, arguing that September's selloff already did the work of clearing excess leverage. The firm's head of equity and equity-derivatives strategy now views early Q4 weakness in the S&P 500 and the Nasdaq as a buying opportunity rather than a reason to retreat.
Tech and AI-linked names are seen as the likeliest first beneficiaries, given that sentiment and positioning were cut hardest there. In mid-September, Rubner had warned stocks could fall into month-end, citing a weak supply-and-demand picture, a soft technical backdrop and a rapid souring of sentiment toward artificial intelligence that he picked up during a multi-country client roadshow. Even then, he said he was growing comfortable using weakness to rebuild core long positions.
Five tailwinds support the Q4 case
Rubner lays out five supports for the more constructive view. First, seasonality: in US midterm election years, the S&P 500 has historically gained more than 5.5% in the fourth quarter from the end of September, against just under 3% across all years.
Second, buybacks: more than half of the S&P 500's weight returns to an open buyback window by November 1, and almost all of it by November 8, alongside fresh authorizations tied to third-quarter results. Third, positioning has cleaned up, with leverage cut hardest where sentiment fell furthest. Fourth, retail demand typically troughs in September before picking back up. Fifth, earnings: third-quarter reporting starts in mid-October after a second-quarter season that delivered about 33% EPS growth and the strongest pattern of upward revisions since at least 2000.
Trading volumes are already turning higher
September trading was the quietest stretch of the year: cash-equity volumes fell to their lowest level relative to their one-year average, and overall trading activity ran about a quarter below its June peak. Activity tends to recover from here, though — over the past four years, cash-equity volumes have risen around 8% on average from September to October, with options activity climbing roughly 15%.
The Fed and oil remain the risks
Rubner's case rests on flows and positioning rather than valuation, and Citadel frames the key question for the quarter as whether earnings and buybacks actually draw investors back in. The view still faces macro headwinds: a Federal Reserve on a tightening path and inflation pressure from oil prices tied to the Iran war could test the thesis before it plays out. Citadel has said a full fourth-quarter playbook will follow, with mid-October earnings serving as the first test of whether the expected pickup in participation shows up.
Source: investingLive
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