Citadel’s Strategist Says History Favors a Year-End Rally. Here’s the Catch
Citadel's Scott Rubner points to a seasonal pattern that has favored stocks in midterm fourth quarters since 1928, but this year broke a key condition that made those rallies possible in the first place.
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Scott Rubner of Citadel Securities opened October saying that the calendar favors stocks, and the SPDR S&P 500 ETF (NYSEARCA:SPY) is the fund most investors would use to act on that view. SPY, the oldest S&P 500 ETF, holds exactly the index his history describes.
His pattern is a summer slump followed by an autumn rebound. This year the slump never arrived. SPY closed near $764, up about 12% year to date, so any year-end rally would have to start from near record highs instead of a deep low. A seasonal pattern measured from a low base does not transfer to a high one, and that gap matters for anyone holding SPY.
What Rubner’s Midterm Record Actually Says
In midterm years since 1928, Rubner found the S&P 500 typically bottomed around September 30 at about 1% below its July 1 level. Rubner said it then typically finished the year about 5% above that July mark.
Since 1950, Rubner said, midterm fourth quarters averaged a 7% gain. They were positive 16 of the past 19 times.
Rubner listed five tailwinds, including buybacks restarting after earnings and reduced positioning. Rubner wrote, “The market enters Q4 from a cleaner starting point, with considerably more capacity to rebuild exposure.”
Ryan Detrick of Carson Group offers the best contrast to that concern. When the S&P 500 entered the fourth quarter up 10% to 20%, the quarter finished higher 18 of 21 times, and this year falls in that range, according to Carson Group.
Why a Rally From Record Highs Needs Different Fuel
The S&P 500 stood about 2.5% above its July 1 level at the September 29 close, roughly 3.5 points ahead of the typical midterm path. Seasonality describes past paths and does not cause prices to move. A normal midterm rally comes from forced selling exhausting itself and buybacks restarting.
Forced selling and reduced positioning both require a prior decline, because positioning cannot adjust if few investors sold. Buybacks will return on schedule. The rest of the case needs buyers with room to add after SPY’s 14% one-year gain.
Chasing an index at new highs is a different exercise than buying it after a drawdown, and the discipline that keeps it from going wrong is mostly about entry rules and sizing (we put ten of those rules in a free breakout buyer’s guide for exactly this setup).
Rising Treasury Yields Land on SPY’s Biggest Weights
Morgan Stanley noted the 10-year Treasury yield hit its highest level since 2002 after a 52-basis-point jump in September, the largest monthly rise since 2022. It ended the month at 5.3%.
Oil near $96 a barrel, after topping $100 in mid-September, feeds the inflation concerns that keep long yields elevated. Higher long yields lower the multiple investors will pay for future earnings, with the greatest damage where those earnings stretch furthest out.
Information technology made up 38% of the index at midyear. SPY’s largest holding alone carried an 8% weight.
2018 Shows How Far a Midterm Quarter Can Fall
The S&P 500 fell about 13% in the fourth quarter of 2018, a midterm year when the Fed was raising rates.
One bad quarter leaves the pattern intact but shows the range of outcomes includes sharp losses. When you decide how much to own, that tail matters more than the average.
Seasonality is a poor reason to change a core allocation. For existing owners, a quarterly pattern gives no reason to change position size, and for investors holding cash, time horizon matters more than the calendar.
Rubner’s record is best treated as background for the quarter, because this year skipped the decline its rebound depends on.
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Omor Ibne Ehsan is a writer at 24/7 Wall St. He is a self-taught investor with a focus on growth, cyclical, and dividend equities that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as penny stocks.
