September lived up to its reputation as a tough month for investors, but Citadel Securities’ top stock strategist sees better things on the horizon as the fourth quarter kicks off.
The firm’s Scott Rubner predicts this month will likely set up a more hospitable investing environment, laying out in a note late last week the bull case for through year end and why it’s an ideal window to load up on stocks.
“October could still bring volatility and a better entry point,” he wrote in a blog post. “But positioning is cleaner, valuations are lower, earnings are returning, and several of the market’s largest buyers have considerably more capacity to participate.”
Rubner emphasized that it might not be a straight line up and to the right, but said that after the market’s September reset, new catalysts are emerging.
For one, “the super bowl” of earnings will arrive at the end of this month, when 44% of the S&P 500 and 38% of the Nasdaq 100 report results, including the biggest tech names that have boosted the market in the second half of the year.
“US corporate profits rose 22.8% year-over-year in Q2 to a record $4.83 trillion, the largest annual increase since Q4 2021,” Rubner said. “Profit growth has now accelerated for four consecutive quarters, while nominal GDP grew 6.6% over the same year. That strength is showing up again heading into Q3 earnings.”
Meanwhile, Rubner also sees a comeback from stock buyers including corporations, systematic funds, and retail traders. He noted that funds are likely done selling and that historically, activity from the retail side often picks up around this time of year.
“That slowdown has historically tended to reverse in October,” he said. “Cash activity has increased from September to October in each of the last four years, by an average of ~8%, while options activity has risen in each of the last three, by an average of ~15%.”
All of this should lead to a more favorable market for stock pickers, even if early October brings some trading volatility.
The combination of a strong earnings season that puts more companies back in control of their own performance and the return of several key buying groups is likely setting stocks up to surge in the coming months, following the path laid out in recent years once the fall trading season kicks off.
“September has also historically been the low point for dispersion before levels begin to pick back up through October and November alongside earnings and year-end flows,” Rubner noted. “That is the opportunity. Index volatility has normalized, but the opportunity set underneath the index remains considerably richer.”
