• July's sharp selloff and sector rotation cleared excessive positioning without breaking the broader bull market.
  • Retail investors turned net sellers, and leveraged ETF assets fell by more than $60B from their June peak.
  • Investors can now focus more on company fundamentals than positioning, according to Citadel Securities' Scott Rubner.

A Reset, Not a Reversal

July's market turbulence did not signal the end of the bull run, but rather a necessary reset, according to Citadel Securities' Scott Rubner. The sharp selloff and subsequent sector rotation served to clear out excessive positioning, leaving the market on more stable footing. "July did not change the structural bull market. It reset it," Rubner said, emphasizing that investors can now shift their focus to fundamentals rather than crowded trades.

Retail and Leveraged Flows Cool

Retail investors, who had been aggressively buying dips earlier in the year, turned net sellers during the July turmoil. Simultaneously, assets in leveraged ETFs—often a measure of speculative appetite—plummeted by more than $60 billion from their June peak. This cooling of retail fervor and deleveraging suggests a more durable market, with less froth and a reduced risk of sudden reversals.

Rotation Out of AI and Semiconductors

The selloff was led by a broad-based rotation out of AI and semiconductor stocks, which had become heavily crowded. This unwind reduced the concentration risk that had built up in these high-flying sectors. While the tech-heavy Nasdaq faced headwinds, the broader market showed resilience, with leadership expected to become more dispersed as earnings season takes center stage.

Fundamentals Take the Wheel

With positioning-related excesses behind, the market's direction now hinges on earnings and macro conditions. Rubner highlighted that the focus has shifted to company-specific fundamentals and the overall macro backdrop. As earnings season progresses, surprises and guidance will likely drive individual stock moves, while buyback demand may provide additional support. The longer-term trend will depend on whether these fundamentals can sustain the bull market's momentum.

This article was updated to reflect that Citadel Securities is a separate entity from Citadel LLC, its affiliate.