LIVE MARKETS-Fading technical headwinds could lift US stocks in April
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FADING TECHNICAL HEADWINDS COULD LIFT US STOCKS IN APRIL
U.S. stocks could be poised for a stronger April as technical headwinds begin to fade with easing geopolitical tensions potentially adding further support, according to Citadel Securities.
Scott Rubner, Citadel's head of equity and equity derivatives strategy, said in a note that investor positioning has become overly bearish, creating scope for a rebound driven by short-covering, improving sentiment and a reduction in mechanical selling pressures.
"Upside tail risks appear underpriced, and in this type of environment, buyers tend to live higher," Rubner writes.
March was packed with technical events, including last week's quadruple witching options expiry, which likely rolled off roughly 35% of U.S. options exposure and may help ease gamma-related constraints that have weighed on equities.
One remaining headwind is quarter-end rebalancing, with pension funds expected to shift toward fixed income and trim equity exposure, according to Rubner.
Systematic investors, including commodity trading advisors, risk parity funds and volatility-control strategies, have also added to the recent selloff after the S&P 500 fell below its 200-day moving average earlier this month.
Citadel's own 10% volatility-targeting model had cut equity exposure by more than 20%, but those same strategies could become buyers if markets continue to rise, Rubner says.
Liquidity remains a key concern. Despite trading volumes above 20 billion shares a day, market depth is still thin, making it harder to execute large trades without moving prices.
ETFs have also played an outsized role in recent trading as investors used them to quickly reduce risk, with leveraged end-of-day ETF flows continuing to drive intraday volatility.
Citadel notes that U.S. ETFs have seen significant outflows lately but overall inflows remain strong, though with a market marked by thin liquidity and growing concentration in passive vehicles, these shifts in positioning can have an outsized effect on price action.
This creates a supportive backdrop for large-cap, liquid names, particularly U.S. mega-cap tech, as markets reset into the second quarter.
Seasonality is also in favor of equities, as since 1928, April has been one of the S&P 500's strongest months, averaging a 1.3% gain with most of the upside typically coming in the first half.
Citadel also expects retail sentiment to rebound next month, with things like tax refunds likely increasing retail participation.
(Shashwat Chauhan)
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