Citadel Securities strategist Scott Rubner says the technical reset that hit stocks this summer has run its course, and the firm is turning bullish on the S&P 500 again. Retail investors have cut risk, leveraged ETF assets have shrunk by more than $60 billion, and consensus estimates for second-quarter S&P 500 earnings growth now stand at 45%, up from 22.4% at the start of the reporting season.
Citadel Securities is turning bullish on the S&P 500 again, arguing that the brutal summer reset in stocks has run its course. Scott Rubner, the firm's head of equity and equity-derivatives strategy, wrote in a note to clients: "The technical reset we have been waiting for has largely occurred." In his view, July did not change the structural bull market — it reset it instead.
A month earlier, Rubner had said markets needed a meaningful technical reset before turning constructive again on U.S. stocks. The S&P 500 has since climbed to 7600.50, up 2.53% over the past five days and 11.03% year to date.
Retail investors pull back leverage
Since the reset began, retail investors have meaningfully reduced risk, leverage has normalized, and market concentration has declined, Rubner said. He added that leveraged exchange-traded fund assets have declined more than $60 billion from a June peak, removing one of the largest sources of incremental leverage that had fueled the first-half rally. Technology-leveraged ETF assets are down 40% and chip-leveraged ETF assets are down 55%.
As a result, hedging has stayed unusually pricey for individual stocks and sectors while staying cheap for the overall market — a gap that finally righted itself during a recent broad-based selloff, Rubner said.
Earnings retake the driver's seat
Rubner also pointed to fundamentals reasserting themselves. He noted that consensus expectations for second-quarter S&P 500 earnings growth now stand at 45%, up from 22.4% at the start of the reporting season. The semiconductor selloff, meanwhile, has cut chipmakers' weight in the S&P 500 to 16% from nearly 20% after a $1.5 trillion wipeout in semiconductor market capitalization.
He remains constructive on the medium-term outlook because the structural pillars of the bull market, including record retail participation, passive ownership, and corporate demand for equities, remain firmly intact.
Source: Citadel Securities
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