“The January Effect saw robust demand across both retail and institutional channels at Citadel Securities.” “Heavy capital deployment, active rotation, and elevated participation provided strong early-year support for risk assets, allowing markets to absorb headline volatility without meaningful drawdowns.”
That is the starting gun. Markets opened 2026 with a pronounced technical tailwind: record retail and institutional flows ignited early-year performance, pushing U.S. equities toward all-time highs and setting a backdrop in which volatility remained compressed. But, as Citadel Securities’ Scott Rubner frames it1, the transition into February is the critical test—shifting from initial deployment to durability of support.
This matters because the narrative isn’t simply “markets are strong”—it’s “context matters, and that early strength may not extend seamlessly.”
Below are the key takeaways from the full report.
I. Retail: Exceptional Demand, But Crowding & Seasonality Loom
“Retail activity in January was exceptional…Demand at Citadel Securities across both cash equities and options reached record January levels.”
Rubner’s data show that retail inflows—both in equities and options—were not just elevated but structurally impactful, concentrated in high-beta and thematic exposures such as Rare Earths, Nuclear Power, Drones, Crypto-sensitive equities, and Precious Metals.
Two mechanics to watch:
- Exuberance and crowding: Retail exposure was persistent, with options activity up ~22% vs. January 2025 and more than 50% above the 2020–2025 average. Precious metals saw exceptional volatility and participation: gold +25% and silver +61% before a violent late-month reversal.
- Seasonality risk: Historically, retail inflow patterns moderate between January and February. Rubner notes that the key question isn’t whether flows disappear, but whether they can sustain January’s pace.
This nuance is central: strong early demand doesn’t guarantee follow-through if sentiment cools or positioning saturates. For advisors, that means monitoring concentration risk in these high-beta retail favorites and providing clients with context around where support might ebb.
II. Rotation: Breadth Expanded, But Leadership Tested
“Rotation was a defining feature of January…Energy, Materials, Consumer Staples, and Industrials led performance…while Technology and Financials lagged.”
January’s leaders reflected a strategic breadth beyond narrow Big Tech dominance. Small caps and cyclicals saw relative outperformance, suggesting underlying breadth. But as February begins, incremental flows are more selective, and shifts back toward large-cap tech have emerged as positioning adjusts.
Rubner’s use of RTY/SPX relative performance illustrates this tug-of-war: after a strong small-cap month, that spread has begun to cool, indicating rotation fatigue or reallocation back into mega-caps.
For investors and advisors, this is not a story of reversal so much as transition—remembering that leadership can be cyclical, not always directional.
III. Positioning: Full But Not Frenzied
“Positioning into January was defined by extraordinary demand…flows provided a powerful technical tailwind.”
Rubner notes that the market’s technical posture has shifted:
- Liquidity still ample
- Incremental deployment slowing
- Volatility & correlations drifting upward
This reflects a market that absorbed January’s demand but may soon price in a broader range of outcomes.
Importantly, institutional behavior is tactical and options-centric—focused around catalysts like earnings—rather than broad directional bets.
For advisors, this suggests layered positioning, not wholesale conviction: hedging and selectivity matter more now than they might have in the early ramp.
IV. Policy: Still a Supportive Tailwind
One of the more subtle yet impactful components of Rubner’s analysis is the continuation of policy support:
“US Financial Conditions are at the lowest level since March 2022 and remain accommodative…macro policy remains an incremental tailwind.”
Rubner also highlights ongoing fiscal stimuli—such as tax refunds—as seasonal liquidity inputs, reinforcing affordability and participation.
For investors, this underscores a macro backdrop that is not hostile—a valuable anchor in environments where volatility and positioning dynamics are shifting.
V. Profits & Fundamentals: Earnings Still Constructive
“Earnings season began constructively…77% beat rate so far.”
Fundamentals, while not the headline driver this month, are not deteriorating. Profit reports, especially from earnings heavyweights, are materially supportive—even if not sufficient alone to sustain technical momentum.
This duality—fundamentals supporting but not dominating—is a familiar theme in market phases where positioning and sentiment take center stage.
VI. The GMI Bottom Line: Leadership & Durability, Not Momentum
Rubner’s own summary frames the current regime:
“Late February into early March presents a different setup…leadership becomes more selective, seasonality less supportive, and markets increasingly sensitive to positioning and sentiment.”
He concludes with a succinct framing of the state of play:
Retail: Record demand
Rotation: Broadening, but selective
Positioning: Fuller; normalization beginning
Policy: Tailwind remains
Profits: Broadening support
This encapsulates the transition Rubner sees: from deployment-driven strength to a test of durability.
Key Takeaways for Advisors & Investors
- January strength doesn’t guarantee February momentum. Early demand was exceptional, but historical seasonality and crowding risk warrant caution.
- Retail participation remains a significant technical force. But crowded, high-beta themes are more sensitive to flow moderation and sentiment shifts.
- Rotation breadth is nuanced. Cyclicals and small caps led early, but leadership is dynamic; reversion toward growth appears underway.
- Positioning has shifted toward selectivity and hedging. Tactical options play and protection (especially at index levels) reflect risk awareness, not stress.
- Policy and fundamentals remain supportive. Accommodative financial conditions and reasonable earnings outcomes provide a stable backdrop—even if they’re not firing the market on their own.
Ultimately, the February report is less a bull/bear call and more a regime shift narrative: from broad, capital-fuelled momentum to a subtle, leadership and positioning test. For advisors and investors, the priority is adaptation—flexibility and selectivity—not rigid conviction.
Footnote:
1 Rubner, Scott. Global Market Intelligence. "February - Citadel Securities." Citadel Securities, 9 Feb. 2026.
