Scott Rubner, who leads equity and equity-derivatives strategy at Citadel Securities, told clients Monday that the momentum that pushed the S&P to fresh highs in August is fading. "This is not a change in our longer-term constructive equity view. It is a change in the near-term risk/reward," he wrote.
He flagged multiple caution signals - timing around earnings, expectations for buybacks, seasonal patterns, and shifts in retail activity - saying, "Collectively, they change the near-term asymmetry." With options pricing sitting at the year's lows, he added that hedging costs are attractive.
This month, the S&P 500 reached an intraday high of 7,816.70 after nearly a 7% advance spanning late July to the first week of August, and then it moved sideways to slightly lower. The Cboe Volatility Index fell to 14.1 last week, the year's trough, and later showed 15.10 at 4:00 PM EDT, up 0.67 (+4.64%).
Cboe also reports that previously elevated single-name volatility versus index levels has eased. The shift is reflected in the exchange's VIXEQ gauge, which tracks implied volatility across the 50 largest S&P 500 constituents. Meanwhile, the spread between Nasdaq 100 volatility (proxied by Invesco QQQ) and SPY has retreated from a June record to the lowest 20th percentile over the past 12 months. "Stronger than expected tech earnings (as seen last week with NVDA) have helped compress the volatility risk premium for tech stocks, as fears over the AI trade have subsided," wrote Mandy Xu, Cboe's head of derivatives market intelligence.
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Rubner notes that September is historically the toughest month for stocks and has also been the softest month for retail buying in Citadel's tracking. Since 2019, average retail net purchases on days when the S&P is lower have run at roughly half their typical level. He also expects corporate repurchases to taper as blackout windows ramp up around Sep. 12.
"Investors are entering a much more macro event-heavy period while paying relatively little premium for protection," Rubner wrote - one reason he argues downside hedges look appealing right now.
