Having been our go to guru at Goldman Sachs for everything 'flows'-related, Scott Rubner is back... at Citadel Securities... with a must read breakdown of what he sees happening in markets over the summer.
Since joining Citadel Securities, I’ve received numerous client inquiries about the same daily markets question: “Is it time to fade the equity market rally?” My response: “We are not there yet.”
Retail “buy the dip” behavior in equities and options represents an important dynamic in the U.S. equity market.
Low institutional positioning and the return of the corporate buyback bid are important market technicals. I put the current set up in baseball terms – inning 7 out of 9. Institutional investors have some FOMU “Fear of Materially Underperforming” the benchmark indices if earnings come remotely in line and equities rally higher.
For the next one month, I am bullish on US equities led by fundamental earnings and positive flow dynamics. I see the pain trade higher for the next few weeks as US companies may beat the low earnings expectations (+4% Q2/Q2 y/y per Haver) and positive translation effects from weaker USD especially as it relates to the US technology sector. This is a low bar for “fundamental investors” waiting for these earnings reports to become “forced-in”.
During mid-August, I am recommending investors add equity index hedges for September month-end. This may take advantage of lower implied volatility to hedge any macro events. September 2nd (post Labor Day) typically marks the highest point for the month over the past 100 years.
July seasonals are exceptional for US stocks. Since 1928, July is the best performing month of the year for the S&P 500, while September is the worst performing month of the year as investors go “back to school”. S&P 500 is on pace for its 11th consecutive monthly gain in July. Citadel Securities summer trading activity is consistent with a substantial increase in equity demand, while others are away from their terminal screens.
Citadel Securities: SPX Monthly Returns (Since 1928)
