Citadel's Rubner sees October turning equity market dynamics

Investing.com - Citadel Securities' Scott Rubner said Monday that equity market dynamics are set to improve as the calendar turns to October, citing the end of quarter-end rebalancing and the start of favorable midterm election seasonality. Rubner noted that positioning remains low and sentiment negative heading into the fourth quarter.

Quarter-end rebalancing concludes Tuesday, September 30, removing what Rubner described as one of the largest sellers of equities as global real money investors and pension funds reduce stock exposure to meet mandated asset allocations. The flow calendar shift coincides with the start of midterm election seasonality on Thursday, October 1, which Rubner called the best month of the year during midterm election cycles.

Corporate buyback activity is expected to resume October 13 as the peak blackout window ends, with dry powder available across the index outside of technology stocks. Rubner said October and November typically represent the best corporate demand periods of the year. Tax loss selling pressure from equity mutual funds is also expected to ease in October.

The S&P 500 (SP:SPX) continues to trade with concentrated positioning, with the top 10 stocks representing a record 41% of the index. The ratio of equal-weight to market-cap weighted S&P 500 performance hit its lowest level since 2003. Rubner said the index is more sensitive to corporate fundamentals than bond yields, with 50% of constituents inelastic to rate moves.

Systematic strategies are not expected to become sellers of equities given strong price trends and lower volatility levels, addressing what Rubner identified as a key concern in September. Retail investor inflows are set to return passively in the fourth quarter after being absent in recent weeks, following typical seasonal patterns.

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