Citadel Securities says 9 of 10 market signals it tracks have turned green, but one major risk remains
Citadel Securities says that green flags are flashing for the stock market even as the AI trade stumbles.
The market marker said this week that several of the headwinds it previously saw for markets in the second half of 2026 have either eased or have reversed completely. However, one risk remains and is coming sharply into focus.
“Nine of the ten indicators on our checklist have improved materially over the past two weeks,” wrote Citadel Securities strategist Scott Rubner. “Our checklist has largely turned green. The remaining question, and now the market’s primary debate, is earnings.”
The 10 signals the firm monitors fall under one of four major categories: retail investor behavior, technical positioning, market leadership, and earnings and fundamentals. Rubner noted that many of the questions his team has been mulling have been answered in a way that suggests a bullish shift.
Not long ago, for instance, data showed retail traders flipping from net stock buyers to net sellers as the Iran war fueled volatility. But as Rubner noted, retail has shifted back to being the strongest structural US equities buyer.
“We have not seen a single net sell day on our retail cash equities platform in July,” he added. “As is seasonally typical, retail is deploying more capital than average this month, with average daily net buying running ~3.2x the historical monthly average.”
Rubner also said that according to his team’s analysis, the market is more defined by dispersion, and that leadership is showing clear signs of broadening as the S&P 500 mostly gains even as many tech stocks have struggled.
Now, the big question mark for Rubner’s team is earnings, and whether second-quarter results can clear a high bar.
“Consensus now expects 22.4% year-over-year EPS growth for the second quarter — if realized, this would rank among the strongest readings on record outside of major recession recoveries,” Rubner said. “Despite lower valuations, earnings expectations have continued to trend higher, a continuation of the pattern we observed ahead of Q1 earnings.”
He described the last week of July as the “Super Bowl” of Q2 earnings,” in which several high profile companies will report, including four of the Magnificent 7.
Wall Street institutions such as Bank of America have expressed optimism for earnings season but Rubner said that the firm views it as the last big unanswered question about. He noted that semiconductor companies will be in focus throughout earnings season as their results are spread out over the course of weeks.
“As a result, earnings risk will remain elevated throughout much of July and August rather than being concentrated into a single week,” Rubner said.