Castle Securities: Retail investors' speculative enthusiasm cools, but the core logic behind the rise of U.S. stocks remains "intact."

Citadel Securities stated that although the speculative trading by retail investors has clearly cooled recently, the core drivers that pushed U.S. stocks to historic highs this year remain "intact," and the market is gradually shifting from a flow-driven environment to one driven by corporate fundamentals. Scott Rubner, head of equity and equity derivatives strategy at Citadel Securities, noted in a recent report: "The market is transitioning from a flow-driven environment back to one increasingly dominated by corporate earnings, stock buybacks, and the macroeconomic environment." Previously, the rise of artificial intelligence (AI) concepts had driven technology stocks to continually increase, leading to repeated highs for U.S. stocks. However, as concerns about overheating in AI trading emerged, technology stocks experienced a significant pullback last month. The Nasdaq 100 index, which is heavily weighted towards technology stocks, recorded its largest monthly decline in over a year, while the semiconductor sector index saw its worst monthly performance since 2008. Data from Citadel Securities shows that retail investors recorded the largest single-week net sell-off since 2022 last week, with the sell-off primarily focused on technology stocks. Meanwhile, the assets of leveraged exchange-traded funds favored by retail investors declined by 28% to $154 billion. Rubner pointed out that this indicates a substantial cooling of market speculation. Additionally, the recent decline in stock financing costs suggests that the capital pressure facing Wall Street trading desks has eased, leading to an overall pullback in market leverage demand. Leveraged ETFs have long been an important tool for retail investors engaging in high-risk trading, as these products typically offer multiple times the return and risk exposure of individual stocks or indices, and are thus seen as a key barometer of market sentiment. However, Rubner believes that after some release of the previous market's "excessive speculation," the fundamentals of U.S. stocks are now healthier. Recent corporate earnings reports have shown strong overall performance, with most companies exceeding already high market expectations, providing support for future stock market trends. He stated, "Corporate earnings continue to exceed expectations, and stock valuations have become more attractive. As the earnings blackout period ends, the demand for stock buybacks from public companies will further accelerate." Rubner further pointed out that the current market has entered a new phase, "where, for the first time in several months, investors can reduce their focus on market positions and capital flows and redirect more energy to corporate fundamentals."