The ongoing adjustment in U.S. equities is far from over, yet a potential turning point appears to be taking shape.

Scott Rubner, Chief Equities and Derivatives Strategist at Citadel Securities, cautions that despite visible improvements in market sentiment and positioning, September's weakness has not run its course, leaving stocks exposed to further downside risk before month-end.

Rubner points to an unfavorable supply-demand balance in the coming weeks, with technicals still acting as a headwind, suggesting equities will remain under pressure over the next fortnight. However, given that positioning has been trimmed and sentiment has deteriorated rapidly, he expresses growing comfort in adding to core long positions during any late-month market softness.

Roughly $7 trillion in U.S. equity options are set to expire this Friday, representing about 25% of total options exposure. Meanwhile, the corporate buyback window is closing, systematic strategies retain selling capacity, and quarter-end cross-asset rebalancing pressures persist—together, these factors form the dominant bearish drivers ahead of month-end.

Beneath the Surface: Declines Are Broader Than the Index Suggests

The S&P 500’s month-to-date decline appears modest, masking deeper damage across the broader market. Nine of eleven sectors have fallen this month, with only Energy and Communication Services posting gains—together accounting for just 14% of index weight.

Index concentration has served as a buffer. The top 10 S&P 500 components now represent roughly 40% of total index weight, and these mega-caps have generally outperformed the average, making the headline index look relatively stable while weakness has spread across a wider swath of stocks.

Options market structure has also shifted notably. The S&P 500’s one-month standardized put/call skew sits at the 62nd percentile of the past year, with the Nasdaq 100 at the 70th percentile and the Russell 2000 reaching the 83rd percentile.

Investors are paying significantly higher costs for index-level protection, yet this demand has not yet filtered down to sector level—tech skew remains at just the 40th percentile, while consumer discretionary sits even lower at the 12th percentile.

The Month-End Supply/Demand Equation: Sellers Still Hold the Edge

Rubner believes that while sentiment has soured quickly, near-term technicals remain unfavorable, with multiple potential selling forces stacking up.

Quantitative strategies still hold sellable positions. Volatility-targeting strategies remain elevated, with simulated positioning for a 10% volatility target at roughly 86%, the highest level since March. CTAs have trimmed exposure, but the aggregate Z-score for U.S. equities has declined from +2.4 at the end of August to +1.1 currently, implying CTAs retain room to sell further if the market weakens.

Quarter-end rebalancing adds cross-asset selling pressure. The S&P 500 remains up roughly 1% in Q3 while bonds have fallen about 2.2%—this divergence implies pension funds may need to sell stocks and buy fixed income to rebalance. The funding ratio of the top 100 U.S. pension plans stands at approximately 112%, the highest since 2001, providing strong incentive to reduce equity allocations.

Friday's options expiry could remove another source of support. With roughly $7 trillion in U.S. equity options expiring—about 25% of national options exposure—the market-maker hedging mechanisms that had helped suppress realized volatility face a reset, potentially heightening sensitivity to subsequent capital flows.

Corporate buybacks are entering a quiet period. Already, 10% of S&P 500 weight is in pre-earnings blackout, rising to 61% by September 30, with most companies unable to restart repurchases until November 1. During the calendar’s weakest window, one of the market’s most important structural buyers is stepping back.

Historical Patterns: Late September Is the Epicenter of Declines

Historically, September weakness tends to concentrate in the back half of the month, and this effect is more pronounced in midterm election years.

Since 1930, the average path in midterm years shows the market typically declines another 1.1% through September 30, before recovering in October and accelerating into election day.

Rubner notes the market is now entering the month’s weakest window, and his tactical view remains unchanged: equites still have room to fall before month-end.

Beyond Quarter-End: Positioning for Q4

Despite near-term caution, Rubner expresses growing optimism about the landscape after quarter-end, citing several accumulating tailwinds.

The excessive enthusiasm in AI trades has largely subsided. Semiconductor volatility has given back earlier gains, leveraged semiconductor ETF assets stand at roughly half their June peak, retail participation has dropped significantly, and some equipment and infrastructure names have retreated 30% to 55% from highs. The tone of market dialogue has swung rapidly from exuberance three months ago to caution—even pessimism.

Seasonality is set to become a tailwind. In midterm election years, Q4 has averaged a 5.6% gain starting September 30, versus 2.9% across all years, with the average path turning positive almost immediately after quarter-end.

Buybacks will resume. Over half of S&P 500 weight re-enters open windows by November 1, with near-full resumption around November 8, accompanied by a fresh round of Q3 repurchase authorizations.

Earnings season is approaching. Q3 results kick off in mid-October, following a Q2 season that delivered roughly 33% EPS growth and the steepest upward earnings revision path since at least 2000.

Rubner concludes that Tech and Communication Services together represent nearly half of the S&P 500, and it is precisely in these sectors where positioning and leverage have been most thoroughly purged. Once this group regains buying interest, the index requires little force to move higher. Should AI leadership broaden during earnings season, this rally has the potential to extend into the wider market.