Scott Rubner, Head of Equity and Equity Derivative Strategy at Citadel Securities, stated that the record level of short positions in the U.S. stock market faces a risk of being unwound, potentially leading to a rebound in the broader market. Hedge funds and systematic strategy funds are anticipated to be the primary drivers of the next wave of buying.

Rubner noted in an interview, "Given the massive scale of current short positions, if geopolitical tensions ease, conditions for a stock market rally would be very favorable." He believes this situation makes the market highly sensitive to the next positive catalyst, but he added that this is not a call for investors to "buy stocks today."

This scenario reflects how some professional investors are navigating recent volatility. Many hedge funds—particularly multi-strategy firms that use short products for tactical positioning—have not sold core individual stock holdings. Instead, they have hedged downside risk by aggressively shorting exchange-traded funds (ETFs).

According to Citadel Securities, ETF trading volume has surged to historic highs, which Rubner describes as a substantial "pool of short capital." In recent weeks, ETFs have typically accounted for around 35% of total trading volume, peaking near 47%.

If tensions in the Middle East ease and market volatility declines, these positions could reverse rapidly.

"There is a large amount of short positioning built based on rules rather than client discretion," he said. "This is something that can flip."

On Monday, U.S. stocks climbed swiftly after former President Donald Trump pledged a five-day pause on military strikes against Iranian energy infrastructure.

Further stabilization could prompt systematic strategy funds, which have been aggressively deleveraging, to incrementally increase their buying.

Commodity Trading Advisors (CTAs), risk parity funds, and volatility target strategies typically follow market momentum rather than fundamentals. After the S&P 500 fell below its 200-day moving average (around 4,622), these strategies reduced their exposure to the index, amplifying the market decline. Citadel Securities' volatility control model had previously cut equity exposure by more than 20%.

Rubner indicated that the ingredients for a rally are in place but have not yet been activated. If global tensions cool, the potential upside could prove to be "highly efficient."

Rubner's bearish forecast in February proved prescient, as the S&P 500 fell more than 2% that month. However, due to increasingly negative market sentiment, seasonal tailwinds, and resilience in retail investor flows, he retracted that prediction in early March.

Meanwhile, retail investors have shown resilience amid sharp market swings. According to Rubner, they have largely avoided panic selling, sticking instead to a pattern of buying on dips and selling on rallies. Data from Citadel Securities shows that retail investors recorded net selling on only three days since the onset of the Iran conflict.

"Retail is not panicking," he said. "They have been buying the dip and selling the rip."

However, sentiment indicators, which often act as contrarian signals, have deteriorated. Citadel Securities' measure of retail risk appetite has fallen significantly from its February peak, reflecting a more cautious attitude among individual investors.

Institutional sentiment is even weaker. Rubner stated that communications with clients across regions have consistently reflected this trend.

"Macro sentiment remains extremely bearish," he said. "For me, that is usually a signal to act as a contrarian."

Rubner suggested that a rotation back into U.S. stocks—particularly large-cap tech shares—could be next, reversing the early-2026 shift toward international markets and cyclical sectors.

If capital flows back, it will likely concentrate in assets perceived as safe havens.

"Investors are moving back into U.S. equities and the highest-quality companies," he said.

Seasonality is also a key factor. Since 1928, April has historically been the second-best month for S&P 500 performance. Rubner noted that even if global tensions persist, much of the risk may already be priced into current levels.