According to Citadel Securities, the fundamental drivers of the US stock market rally remain firmly intact despite recent volatility. Scott Rubner, head of equity and equity derivatives strategy at the market maker, noted that markets are transitioning from a flow-driven environment back to one increasingly dictated by earnings, corporate demand, and the macroeconomic backdrop. This shift represents a significant change in market dynamics as investors focus more on fundamental factors rather than speculative trading patterns. As per Citadel Securities, July did not change the structural bull market. It reset it, arguing that positioning has normalized after the violent selloff.
Retail investors demonstrated a notable shift in behavior last week, posting their largest week of stock selling since 2022, as reported by Citadel Securities. The retail selling was concentrated primarily in tech stocks, which had been among the primary drivers of the market rally to all-time highs. According to Citadel Securities, retail sold more tech notional in one week than at any point since January 2019, beating the prior record by over 80%. This retreat contributed to a 28% decline in leveraged exchange-traded fund assets to $154 billion, with semiconductor products alone shrinking nearly 55% in a month. Recent market data shows that value-oriented groups were the best-performing factors on the week, while momentum unwind continued to dominate headline indices.
While US equities experienced their reset, US Bitcoin demand has been negative for 78 consecutive days, a record low according to CoinGlass data. The Coinbase Premium Index, a gauge of American buying appetite, sits at roughly -0.1145%, tracking how far Bitcoin's price on Coinbase sits below other large venues. This represents a significant deterioration from the previous record of 40 days set between January and February. Tech equities gained 43.5% in the second quarter and the Nasdaq 100 rose 27.7%, while Bitcoin fell 13.4% and spot Bitcoin ETFs bled $4.9 billion over the same period. Despite July's semiconductor liquidation that should have freed capital, Bitcoin has not participated in the equity market reset.
Despite the recent volatility, Citadel Securities reports that earnings continue to surprise to the upside, with companies managing to surpass already elevated expectations. Rubner noted that valuations have become more attractive and that corporate buyback demand is set to accelerate as earnings blackout windows expire. The cost of financing equity positions has dropped, indicating that Wall Street trading desks are under less pressure and that demand for leverage has fallen. Citadel expects roughly 85% of the S&P 500 by weight to be clear to buy back stock by mid-August. These factors suggest improved market conditions for fundamental investors, with the recent momentum unwind creating opportunities for value-oriented strategies.
According to Citadel Securities, the current environment represents a significant shift where investors can spend less time focused on positioning and more time focused on fundamentals. Rubner emphasized that while the excesses have been unwound, the recent spate of strong earnings bodes well for US stocks, with the market transitioning back to a more traditional earnings-driven environment rather than speculative trading patterns. However, NYDIG warns that recovery may be hollow, citing positive funding and rising open interest near cycle lows as a troubling setup for a liquidation-driven leg lower. The firm argues that neither ETF flows nor stablecoin supply confirm it, suggesting that leveraged traders are rebuilding risk while cash buyers who confirm a bottom stay out. BTC price near $63,859 leaves Bitcoin up 2.2% over 24 hours and 1.6% across 30 days, with its market capitalization near $1.28 trillion.
