Scott Rubner, head of equity and equity derivatives strategy at Citadel Securities, told clients the firm is turning more constructive on US equities for the fourth quarter.
His case starts with September clearing out excess leverage and stretched positioning.
"The market enters Q4 from a cleaner starting point, with considerably more capacity to rebuild exposure."
Scott Rubner, Citadel Securities
Cash-equity trading volumes fell to 0.94 times their trailing one-year average in September, the lowest reading of 2026.
Retail options premium hit the same level, while overall stock activity sits 26% below its June high. Options premium has dropped by roughly one-third from the 1.41-times average reached in June.
September was also the quietest month for cash-equity trading since December 2024. Equity flows fell into the 12th percentile last week, according to JPMorgan strategists led by Arun Jain.
Rubner sees five tailwinds into year-end: midterm-year seasonality, reopening corporate buyback windows, cleaner positioning, returning retail demand, and earnings.
Cash volumes typically pick up in October, rising an average of roughly 8% over the last four years. Systematic positioning is also below neutral, leaving room for those funds to rebuild exposure.
The S&P 500 is hiding a much weaker market
The S&P 500 sits about 2% below its all-time high, but the average stock has had a very different quarter.
The index gained 2% in Q3 while its equal-weight counterpart fell 2%. The Russell 2000 dropped 7% and semiconductors fell 11%, while the Mag 7 gained 11%. Just 25% of S&P 500 constituents trade above their 50-day moving average.
Fewer than 45% trade above their 200-day average, which Ned Davis Research called the worst-ever market breadth with the index this close to records.
Concentration explains much of the disconnect. Microsoft, Nvidia, Apple, and Meta contributed roughly 300 points to the S&P 500 in Q3, more than 200% of the index's entire gain.
Every dollar flowing into the index puts 41 cents into just 10 companies, with Nvidia alone taking about 8 cents.
Bonds could complicate the Q4 setup
The S&P 500 and Dow both ended September lower as elevated yields and inflation pressure weighed on markets.
The iShares 20+ Year Treasury Bond ETF fell 5.7% in September, its worst month since December 2024.
Rubner isn't calling for a straight line higher. October could still bring volatility and a better entry point before the tailwinds he sees begin to take hold.
The first test comes in mid-October, when earnings season starts and corporate buyback windows begin reopening into early November.
