Analysis: Citadel Securities expects retail stock buyers to return in Q4

Citadel Securities expects retail investors to return to US stocks in the fourth quarter after investors withdrew from stocks in September. Citadel Securities handles about 35% of retail investors' trades. Scott Rubner, a strategist at Citadel Securities, wrote to clients on Thursday that September reduced market positioning and the fourth quarter would bring renewed buying.

Bloomberg said retail share trading fell to 0.94 times its one-year average in September, the lowest level of 2026. Bloomberg put September retail trading activity 26% below June's peak. Retail trading has risen from September to October in each of the past four years, by about 8% on average.

Most companies cannot buy back their own shares before earnings, and those buyback windows reopen October 15. Model-driven trading funds have reduced their stock positions to the bottom fifth of their range since 2024. Analysts expect S&P 500 earnings per share to rise 27% this quarter. Goldman Sachs has dismissed talk of an S&P 500 earnings bubble. Rubner said earnings expectations have moved higher in 2026, and companies have continued to exceed those expectations by a wide margin.

Since 1930, the S&P 500 has averaged a 5.6% gain in the fourth quarter of midterm-election years, compared with the usual 2.9%. However, the quarter's low occurred in October in 14 of those 23 years. A favorable fourth-quarter outlook does not necessarily mean a smooth start to October.

US employers added just 29,000 jobs in September against forecasts of 84,000. Unemployment rose to 4.2%. Borrowing costs exceed 5%. Most S&P 500 stocks fell in September, even as the index edged higher.

Citadel Securities makes money executing trades, including the retail orders the firm expects to return. Rubner concluded that September reduced leverage and positioning, while the fourth quarter brings earnings, market catalysts and buyers back. The first test of that outlook comes October 15.