Citadel Securities’ Rubner Says AI Trade to Gain After Midterms

Citadel Securities’ Scott Rubner said investors are poised to pile back into the artificial intelligence trade next month, once the crucial US midterm elections have passed.

“Everyone is using the midterm elections as a level that is a clearing event for risk, and specifically I think that’s the period when AI can outperform again,” Rubner, the firm’s head of equity and derivatives strategy, said on Bloomberg Television on Tuesday at the Citadel Securities Future of Global Markets conference in New York City.

“The feedback we are getting from our clients is, ‘happy to buy higher, but not buy now into a major political event,’” he added.

The outcome of the midterm elections will bring clarity on AI regulation and policies on other sectors. If the Democratic Party wins control of both houses of Congress, Wall Street strategists are expecting tighter regulation, which could lead to a further selloff in semiconductor stocks.

The Philadelphia Semiconductor Index has been hit hard, shedding nearly 16% over eight straight days through Friday. Meanwhile, the tech-heavy Nasdaq 100 Index slumped 5.5% and the broader S&P 500 Index also struggled last week.

Read More: Chip Stocks Erase $1 Trillion in Value as Rout Deepens

Rubner’s remarks echo those expressed by Bank of America Corp.’s Michael Hartnett, who expects investors to seek shelter in the weeks leading up to the midterms amid higher interest rates and elevated inflation.

Nonetheless, the benchmark equity index is hovering near its record and the Nasdaq 100 is also only 5% away from its Oct. 6 high as of Monday’s close.

Retail investors “continue to buy the dip pretty aggressively,” snapping up semiconductor, neoclouds and memory stocks last week at the largest rate in 16 weeks, according to Rubner. At the same time, institutional clients continue to de-lever, he said.

Read More: Citadel Securities’ Rubner Says Retail Traders Return to AI Bets

The recent selloff is part of a broader rotation throughout the second half of this year. The momentum factor — the strategy of chasing winners and selling losers — was up 70% from Jan. 1 to June 22, and has since flipped negative for the year, said Rubner.

Similarly, AI winners were up over 100% compared to AI laggards over that same period before also turning negative, he added.

“We’ve seen this very large unwinding in the market,” Rubner said.