Why the Recent U.S. Equity Pullback Is No Cause for Alarm: Wall Street Strategist Predicts AI Rally in October
With Silicon Valley embroiled in debates over "AI risks" and the Federal Reserve’s interest-rate hike finally in the books, the S&P 500 has retreated roughly 1.8% month-to-date in September, sitting 3.2% below its mid-August highs.
However, Scott Rubner, Head of Equity and Derivatives Strategy at Citadel Securities, wrote in his latest client note that U.S. equities are currently carving out an interim bottom. While markets could face further headwinds over the next two weeks, underlying supply-demand dynamics are already beginning to tilt in favor of the bulls.
Rubner characterizes the pullback as an orderly structural rotation rather than a disorderly liquidation—a constructive backdrop that typically sets the stage for a durable recovery.
He projects that beaten-down artificial intelligence equities will lead the rebound in October, in turn pulling the broader market higher. From his perspective, investors should use any incremental weakness heading into month-end as a window to accumulate core assets.
An Inflection Point on the Horizon
Rubner is far from indiscriminately bullish on the immediate near term. "Heading into month-end, the flow dynamics remain unfavorable and technical factors continue to cap equities, leaving room for further downside over the next two weeks," Rubner noted.
"Yet the broader market structure has begun to turn."
The assessment builds directly on the cautionary stance he struck roughly three weeks ago, when he and several Wall Street peers warned of seasonal September turbulence—statistically the most challenging month on the calendar for equities.
At the time, he advised adjusting short-term tactical allocations while maintaining a constructive long-term posture.
Backtested data from Citadel Securities dating back to 1930 shows that the S&P 500 sheds an average of roughly 1.1% during the final two weeks of September before staging a recovery in October.
In midterm election years, the benchmark index posts an average gain of 5.6% from its late-September low through year-end.
AI "Crowded Trade" Risks Unwound
Rubner highlighted that the heavy selloff in artificial intelligence equities has largely flushed out excess multiple expansion. The swift de-grossing and deleveraging across AI positioning have, in effect, laid the foundation for an eventual counter-trend rally.
The tech-heavy Nasdaq 100 finished in the red for five of the past seven sessions, sitting nearly 6% below its early June peak.
The primary catalyst behind the AI retreat was a sudden escalation in skepticism surrounding the technology's deployment timeline, which triggered an aggressive unwinding of crowded long positions. Rubner contends that this de-risking phase is quietly building momentum for a decisive reversal.
"Three months ago, the risk was that everyone was piled into the exact same long trade," he wrote. "Today, the risk is that consensus has flipped completely—everyone has turned bearish together. That level of one-sided pessimism itself constitutes a potent contrarian catalyst."
Diverging Views Across Wall Street
Rubner’s thesis arrives amid deepening divisions across dealing desks regarding the market's path forward:
- Bank of America equity strategist Savita Subramanian recently raised her year-end target for the S&P 500, underscoring resilient earnings fundamentals.
- Yardeni Research founder Ed Yardeni, historically one of the Street's most vocal bulls, trimmed his expectations and adopted a more defensive posture in light of compounding macroeconomic risks.
Rubner navigates the middle ground: tactically cautious over the near term, strategically constructive over the intermediate horizon.
Emphasizing that he is growing "increasingly constructive" on the outlook through year-end, Rubner maintains that should the drawdown extend into late September, it will offer investors a prime entry point to rebuild exposure to high-conviction market leaders.