Citadel Securities: AI Sector Selloff Fully Digested, Poised to Lead Gains in October
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Citadel Securities strategist Scott Rubner says the recent AI sell-off has largely wrung out the sector's valuation froth, and AI stocks could lead a rebound starting in October — though he warns the final two weeks of September still carry downside risk.
How deep is the September drawdown?
The S&P 500 fell roughly 1.8% in September, pulling back 3.2% from its mid-August high; 9 of 11 sectors posted losses.
The Nasdaq 100 dropped on five of the last seven trading days, down nearly 6% from its early-June peak.
Rubner frames this as "structural rotation, not disorderly selling." This means → money is shifting between sectors, not fleeing the market — a pattern that preserves the foundation for a rebound.
Will stocks keep falling through month-end?
Rubner is explicit: the supply-demand backdrop and technicals remain unfavorable through month-end; U.S. equities face further downside over the next two weeks.
Citadel's back-test of data since 1930 shows the S&P 500 drops an average of ~1.1% in September's final two weeks.
In plain terms = the dip isn't over yet — but that very fact turns the month-end pullback into a positioning window.
What's the case for an October bounce?
Historical data shows the S&P 500 begins recovering in October, with rally momentum accelerating around Election Day.
In midterm-election years, the S&P 500 averaged a cumulative gain of 5.6% from the September 30 low through year-end.
This means → seasonal patterns and the election-year effect stack together, making October statistically one of the strongest "turnaround months" of the year.
Everyone is bearish — could that actually be bullish?
Three months ago the risk was "everyone crowded into the same trade" on the long side of AI. Now the risk has flipped — everyone has moved to the bearish side.
This reflects a sentiment swing from extreme optimism to extreme pessimism; extreme consensus itself becomes a contrarian catalyst.
Rubner's logic: tech and communication-services stocks account for roughly half of the S&P 500's market cap. Once earnings season confirms AI leadership, the rally could extend well beyond the first-wave leaders.
Where does the rest of Wall Street stand — consensus or split?
Bank of America strategist Savita Subramanian recently raised her year-end S&P 500 target, leaning bullish.
Prominent bull Ed Yardeni cut his forecast as risks accumulated, turning more cautious.
In plain terms = Wall Street itself hasn't reached a consensus. Whether AI stocks deliver in the upcoming earnings season is the key test of Rubner's call.
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