Castle Securities is optimistic about a rebound in the stock market and suggests that investors prepare for a resurgence of leveraged bets.

Castle Securities believes that after a round of massive stock market deleveraging, systematic buyers are gearing up to re-enter the market. "The leverage reset is effectively nearing its end, and as volatility decreases, it creates space to increase exposure for systematic strategies," said Scott Rubner, head of equity and derivatives strategy at Castle Securities. "Breadth is improving, correlations are nearing historical lows, and investors are becoming increasingly willing to pay for upside potential." Data from Castle Securities indicates that August is likely to attract a resurgence of buying, as the assets under management of leveraged ETFs plummeted to $154 billion last month, a nearly 42% drop from $218 billion at the end of June. The most significant declines were in the semiconductor sector, where leveraged ETFs currently hold approximately $31 billion in related assets. The company noted that the potential for a rebound is building. "The next wave of mechanically impactful capital flows may be re-leveraging rather than deleveraging," Rubner wrote in a research report. He also mentioned that retail investors are returning, becoming net buyers on the company's platform last week, although they are still spending money on downside protection. Meanwhile, the end of earnings season means that the window for corporate stock buybacks is about to reopen.