Don't fade the stock market yet, says former Goldman tactical strategist now at Citadel

Scott Rubner, a former Goldman Sachs tactical strategist now at Citadel Securities, advises against fading the current stock market rally, projecting continued U.S. equity strength for the next month. He attributes this to a low bar for earnings, a weaker dollar, strong July seasonal trends, anticipated corporate buybacks in August, and declining volatility, viewing the rally as being in 'inning seven of nine.' However, Rubner recommends investors add equity index hedges by mid-August to prepare for potential autumn weakness and macro events, noting September's historical underperformance, as the S&P 500 and Nasdaq Composite approach or hit record highs.

Analysis

Scott Rubner of Citadel Securities posits that the current U.S. equity rally, while in a late stage described as 'inning seven of nine', is not yet a fade opportunity. For the immediate one-month horizon, the outlook is bullish, underpinned by several key factors. These include a low bar for corporate earnings, which is further aided by a weaker dollar's positive translation effects for technology companies, and exceptionally strong historical seasonality for July, which has been the S&P 500's best-performing month since 1928. Positive flow dynamics are also expected, as a significant portion of S&P 500 companies will be clear to resume share repurchases after August 1st, a month known for robust buyback activity. Furthermore, declining volatility is cited as a primary driver, shifting from a peripheral influence to a central, supportive role for equities. However, this optimism is tempered with a cautious stance for the autumn. Rubner specifically recommends adding equity index hedges during mid-August to prepare for September, which is historically the market's worst-performing month and often sees a peak around Labor Day.

Key Decisions for Investors

• Investors should consider maintaining a bullish stance on U.S. equities for the immediate one-month period to capitalize on supportive seasonal trends, positive earnings dynamics, and anticipated corporate buyback flows.
• It is prudent to plan for portfolio hedging by mid-August, specifically by adding equity index hedges to mitigate risks associated with September's historical underperformance and potential macro events.
• Monitor corporate buyback announcements post-August 1st and trends in market volatility, as these are identified as critical drivers whose potential reversal could signal an end to the current rally.