U.S. equities are positioned for sustained gains following a technical reset that has concluded, according to Scott Rubner, head of equity and equity-derivatives strategy at Citadel Securities. Rubner told clients that a completed leverage reset has created fresh capacity for systematic strategies to increase exposure after volatility in July and August.
The Cboe Volatility Index (VIX) has stabilized around 15, down from above 20 in late July. Leveraged exchange-traded fund assets fell more than $60 billion from a June peak to $154 billion, signaling the deleveraging cycle has run its course.
Rubner said: "The next meaningful mechanical flow may be re-leveraging rather than deleveraging." Systematic strategies are now positioned to add exposure if volatility continues to decline and market trends re-establish.
Retail investors have also re-entered the market after selling pressure in late June, though they remain cautious and are actively purchasing downside protection. Passive exchange-traded funds continue generating what Rubner called "relentless" buying demand. Companies have authorized more than $1 trillion in share buybacks, with windows expected to open soon.
Corporate earnings have also driven the rally. Rubner said: "Earnings are better than expected, and by a wide margin." These buying flows are currently "reinforcing one another," he added.
On Aug. 29, the S&P 500 rose 0.9 percent to 7,619, the Nasdaq climbed 1.2 percent to 26,297, and the Dow Jones Industrial Average gained 0.4 percent to 51,671.
Rubner cautioned that September may present headwinds due to harder seasonal patterns and potential position crowding. He also warned that "if August turns into a chase, some of today's buying capacity will have already been deployed," limiting future upside.
The broader macroeconomic environment remains complex. The $30 trillion Treasury market is facing rising yields, which could present pressures across portfolios.
