The Fed Put Is Dead: Why Stagflation & a Bear Market Are Next | Vincent Deluard | StoneX

Vincent Deluard believes the U.S. equity bull market has likely ended and a bear market has begun, despite the index sitting only about 2% below its all-time high. Roughly two-thirds of U.S. stocks are below their 200-day moving average, and the median stock is already in a bear market. Nike, Harley-Davidson, Nordstrom and McDonald’s have fallen roughly 50–60% or more, a breadth of consumer-stock damage he considers unusual during Fed rate hikes. He argues investors remain too optimistic about earnings, economic growth and the Fed’s ability to keep tightening.

The earnings outlook may be flattered by fading fiscal support. Deluard estimates tariff refunds and individual tax refunds supplied about $300 billion of support to consumers and corporate margins; companies generally kept tariff-related price increases rather than returning the refunds to customers. He suggests perhaps half of Q3 earnings estimates, which call for roughly 30% growth, could reflect fiscal policies that are about to turn. Corporate income tax collections have fallen 50% over two years, which he attributes to accelerated depreciation allowing qualifying capital expenditure to be deducted in the year it occurs. While that policy can support investment, he warns it may also encourage capital misallocation.

He sees slowing consumer spending, weaker fiscal support and a possible AI investment slowdown weighing on growth. Hyperscaler capital expenditure contributes close to 2% of GDP, while AI capital expenditure overall is around 3%, making another year of doubling difficult; in his view, growth outside that spending is weak. Personal income tax collection growth has slowed from about 10% to roughly 5%, and was closer to 3.5% over the past month. Deluard expects weakening data alongside sticky inflation to leave the Fed facing a difficult trade-off. Markets were pricing close to three hikes over the next 12 months; he says one hike in December followed by a pause would make sense, and doubts the Fed could deliver all the hikes priced in if credit deteriorates or stocks roll over.

Deluard expects the Fed to prioritize employment and growth, potentially finding ways to discount inflation, including changing its target or index weights. He cautions that falling average hourly earnings do not prove workers lack bargaining power: Atlanta Fed data tracking the same workers show median wages rising, which he says is consistent with changes in workforce composition. In earlier price shocks, wages initially lagged oil prices but typically caught up over six to 12 months, especially when fiscal policy was loose and the labor market tight. A further escalation in the Iran conflict could amplify inflation: Deluard says supply is tight, the Strategic Petroleum Reserve is empty and China’s shadow inventories are depleted as it returns to the market. In a severe disruption, he considers $200-a-barrel oil possible, with insurance, transport, geographic premiums and refining margins adding to delivered fuel costs.

For the next six months, Deluard favors Treasuries over stocks mainly for their liquidity, not because he finds them especially attractive on valuation; he expects mediocre returns but thinks they could outperform stocks in a bear market. Potential demand could come from portfolio rebalancing and pension funds locking in yields. He notes an average pension funding ratio near 1.15, its highest in 25 years, against long-term Treasury yields around 5.5% and pension discount-rate assumptions near 7%. He expects more bill issuance and less coupon issuance, possibly including an announcement on the 20-year, and anticipates a balance-sheet task force proposing Fed–Treasury coordination to limit liquidity damage. A debt-ceiling impasse between February and April could halt issuance; drawing down the roughly $1 trillion Treasury General Account would then release liquidity and support the yield curve.

His central outlook is stagflation—low growth with sticky inflation—which he calls the biggest problem facing the United States. He expects neither a Fed put nor a fiscal put over the next two years: inflation will constrain the Federal Reserve, while divided government and Trump’s veto power will limit fiscal action. He expects secular inflation of around 3.5–4% to persist and says real growth near 2%, together with the term premium, could push long-term yields to 6–7%. Stagflation has historically been a poor environment for assets generally. The bull case is not entirely dead: strong earnings or a possible Anthropic IPO could fuel one last market pop, but Deluard thinks the current rally or opportunity may be over within six to twelve months.