September provided a stock-market reset, pointing to a good end to the year, says Scott Rubner of Citadel Securities
The fourth quarter of the year may be shaping up as a good one for Wall Street stocks.
Recent weeks may have been frustrating for investors, with the S&P 500 churning beneath its surface to produce a gain of 2% in the third quarter.
But Scott Rubner, head of equity and equity-derivatives strategy at Citadel Securities, thinks September in particular gave the market a reset that it needed, as investors' equity exposure and leverage dipped, retail activity cooled, algorithm-focused funds sold and valuations were compressed.
Citadel Securities says it executes approximately 35% of all U.S.-listed retail trading volume, making it the largest by market share.
"Now the setup begins to change," he says, in a note published Thursday. "September was the reset. Q4 is the reload."
The first reason for Rubner's optimism is that corporate earnings are about to dominate market chatter for several weeks - and they're expected to be very strong, on an aggregate basis, once again.
S&P 500 SPX third-quarter earnings-per-share estimates have increased 2.2% over the past two months, versus a median 1.9% decline over the same pre-earnings window since 2000, according to Rubner.
And this leaves consensus third-quarter EPS growth of 27% compared with a year before. That follows 20% EPS growth in the year's first quarter and 32% in the second quarter, both of which came in significantly higher than expected at the time.
"The story in 2026 has not been a low bar. Expectations have moved higher, and companies have continued to clear them by a wide margin," Rubner says.
Crucially, with the broader market spinning its wheels of late, surging earnings mean price-to-earnings multiples have dropped. The S&P 500 trades at 19 times its forward earnings, which is 15% below its 2026 high and essentially in line with its 10-year average, according to Rubner. As the chart below shows, the pullback in technology valuations is even greater.
The earnings season should mean that the environment shifts back to a stock picker's market, Rubner adds. "Oil, rates, and geopolitics dominated the conversation in September. Earnings and company-specific fundamentals are about to take back the calendar."
Indeed, it's the calendar that should provide another reason for investors to be more bullish, he says, as the "seasonal backdrop is turning from a headwind into a tailwind." The stats show that since 1930 the S&P 500 has gained an average of 5.6% in the fourth quarter of midterm years, nearly twice the 2.9% average across all years.
But it won't necessarily be a straight line, with the fourth-quarter low having been touched in October in 14 of the 23 midterm years since 1930. From such lows, the median rally into year-end has been 10%, Rubner observes.
"That is an important distinction," he says. "A constructive Q4 setup does not necessarily mean a clean start to October. Historically, October has often provided the volatility and the entry point before the stronger part of the year-end move."
Rubner considers the final bullish driver to be currently the most important: that buyers should come back. "Several of the market's largest marginal buyers pulled back through September. They now enter Q4 with considerably more room to add [equity holdings]," he says.
For example, corporations are mostly in their earnings blackout periods, but the share-buyback period begins to reopen on Oct. 15. "From there, the corporate bid should build through earnings season and accelerate into November, historically the strongest month of the year for corporate buyback executions," says Rubner.
Retail investors, too, are poised to increase their buying of stocks and options after pulling in their horns during September, he contends. These individual investors' "cash activity has increased from September to October in each of the last four years, by an average of about 8%, while options activity has risen in each of the last three, by an average of about 15%," Rubner adds.
Finally, traders that Rubner describes as systematic (typically funds that undertake computerized, algorithmic trading based on quantitative models) have reduced their stock-market exposure notably. Their positioning is now in the bottom fifth of the range since 2024 and below neutral for the first time since April.
Rubner concludes: "September took leverage and positioning out. Q4 brings earnings, catalysts, and buyers back in." And if there are any market dips in the final quarter "we would use that weakness to add to core longs, with a preference for single names where positioning has reset and earnings can drive the next move."
The markets
U.S. stock-indices SPX DJIA COMP are higher as the opening bell rings on Wall Street, with Treasury yields BX:TMUBMUSD10Y sliding after soft jobs data. The dollar index DXY is lower as gold futures (GC00) rise to around $4,240 an ounce.
Key asset performance Last 5d 1m YTD 1y S&P 500 7666.45 -0.49% -1.05% 11.99% 14.16% Nasdaq Composite 26,871.60 -0.25% 1.08% 15.62% 17.63% 10-year Treasury 5.233 6.80 44.40 106.10 111.20 Gold 4216.4 -2.17% -6.72% -2.67% 8.65% Oil 89.18 -5.89% -2.72% 55.34% 46.97% Data: MarketWatch. Treasury yields change expressed in basis points
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The buzz
U.S. nonfarm-payrolls rose by 29,000 in September, much lower than August's downwardly revised gain of 133,000, and less than economists' forecasts for 84,000. The unemployment rate rose to 4.2% from 4.1% the month before.
Nike shares (NKE) are sliding to a 13-year low after earnings beat estimates but CEO Elliott Hill said it would "take time" for Nike's turnaround efforts to pay off.
Amazon (AMZN) is seeking to offload about $8 billion of advanced Nvidia (NVDA) chips to external investors through a new vehicle aimed at strengthening its balance sheet, according to the Financial Times. Amazon is also hiking chip-rental prices.
Oil prices (CL.1) fell following reports that Europe was considering releasing some diesel stocks.
The Dallas Fed president, Lorie Logan, is set to give opening remarks at the Workshop on the Macroeconomic Implications of Migration at 10 a.m.
Other U.S. economic data to be released on Friday include factory orders for August, published at 10.am.
Quant hedge funds reap big gains from global bond selloff.
The chart
Following on from the buyback bonanza noted above by Scott Rubner at Citadel Securities, here's the breakdown of where this year's $1.3 trillion of company share purchases may be going.
Top tickers
Here were the most active stock-market ticker symbols on MarketWatch as of 6 a.m. Eastern.
Ticker symbol Security name INFY Infosys NVDA Nvidia MU Micron Technology GME GameStop TSLA Tesla AMZN Amazon.com NKE Nike SPCX SpaceX AMD Advanced Micro Devices TSM Taiwan Semiconductor Manufacturing
-Jamie Chisholm