Castle Securities: The Force Behind the Record Highs in the US Stock Market

August 4th, Castle Securities stated that the strength driving U.S. stocks to record highs this year is still "firmly in place" after a cooling of retail investor speculative trading. Scott Rubin, Head of Stock and Equity Derivatives Strategy at Castle Securities, wrote: "The market is transitioning from an environment driven by fund flows to one increasingly dictated by earnings, corporate demand, and the macroeconomic backdrop." According to Castle Securities data, retail investor retreat has led to a 28% reduction in assets under management for leveraged ETFs, down to $154 billion. At the same time, the decrease in stock position financing costs suggests that Wall Street trading desks are facing reduced pressure, with a corresponding decline in demand for leverage.

A recent series of strong earnings performances continues to benefit the U.S. stock market as companies have successfully exceeded already elevated market expectations. "Earnings surprises persist in driving upside, valuations have become more attractive, and with the quiet period for earnings ending, corporate buyback demand is expected to accelerate."