Foreign media reports that Citadel Securities believes the period from late June to early July will be one of the most crucial technical phases for US stocks this year. The convergence of month-end, quarter-end, and half-year-end may lead to portfolio adjustments and passive fund allocations having a greater impact on market movements in the short term than fundamental news.
Retail investor trading activity remains high
Scott Rubner, head of equities and equity derivatives at the firm, said retail investors remain one of the strongest sources of buying in the current market. Citadel Securities stated that its platform saw the most large retail trading days in its history over the past month.
The day SpaceX went public was the day with the largest retail buying activity on record, exceeding the previous record by 50%. Rubner stated that retail trading is no longer concentrated solely on highly volatile assets, but is increasingly flowing into large-cap companies that drive benchmark indices higher, making its portfolio style more similar to that of institutional investors.
Quarter-end position reset is approaching
The end of June marks the end of the month, the second quarter, and the first half of the year. Citadel Securities believes this means that future market volatility may be driven more by technical factors than entirely by new capital inflows.
Last Friday, US stocks saw a massive "quadruple witching day" of options expiration. The agency estimates that approximately $8.3 trillion in US options exposure expired, one of the largest in history. Rubner stated that this will clear a significant portion of gamma exposure in the market, making the market more sensitive to changes in fund flows as investors rebuild positions before the end of the month.
Meanwhile, quarter-end rebalancing may also cause short-term disturbances. Citadel Securities stated that the current funding adequacy levels of the top 100 US pension funds are at their highest level since 2001, and some funds may sell stocks and increase their allocation to fixed-income assets at the end of the month, thus putting temporary pressure on the stock market.
Seasonal funds may flow back in early July.
The institution also mentioned that a new round of asset allocation will begin on July 1, with retirement contributions, target date funds, passive allocation, mutual fund subscriptions, and systematic strategy funds likely to re-enter the market at the beginning of the new quarter.
Citadel Securities states that historically, the first half of July is typically one of the strongest periods for US stocks. Their data shows that the S&P 500 has risen in all 11 past Julys, and the Nasdaq 100 has risen in July in 17 of the past 18 years.
The agency believes that the high level of retail investor activity will also provide support for the market in July. Historically, July is typically one of the most active months for retail trading.
