The record-breaking stock market will tumble before September, but a recession effectively is “canceled,” a leading strategist told Business Insider.
“I expect US stocks to experience a sharp but brief correction in the summer,” Vincent Deluard, the director of global macro strategy at StoneX, a financial services network, told BI in an interview.
In a recent note, Deluard raised the prospect of a “brutal but brief” sell-off in late July or early August. He based the call on Donald Trump’s tariff-negotiation period ending on August 1 and potentially spooking markets; the likelihood of further interest-rate cuts being delayed because of accelerating inflation and a tightening labor market; and the narrow breadth of the latest market rally, he said, adding that narrow rallies often lead to a correction within a month.
He added in his note that foreign investors were anxious about “Trump’s antics” with tariffs, the deficit, and their exposure to the US economy. He predicted selloffs would be short-lived as overseas buyers can’t resist Big Tech stocks given their dominant market positions and central roles in the AI revolution.
Deluard told BI he expects “several steep corrections” in stocks over the next two years due to “erratic policymaking, pressure from rising long-term bond yields, and selling from foreign investors.”
‘Recessions have been canceled’
The macro specialist told BI there was a risk of a “brief stagflationary slowdown,” but he ruled out a prolonged downturn as “recessions have been canceled by the shift to intangible assets, permanent stimulus, and demographics.”
Deluard spelled out his thinking in a note in May.
He highlighted that the US economy has spent just 1% of the past 16 years in recession, down from around 40% of each decade between the 1860s and 1930s.
He added that the main changes were a transition from an industrial economy to a less volatile services one, big rises in government spending on healthcare and social support programs for an ageing population that have acted as a “permanent economic stimulus,” and policymakers adopting a “whatever it takes” approach to avoiding recessions.
Deluard told BI that the Federal Reserve might have to raise its inflation target from 2% to as much as 4%, because officials will realize they can’t aim lower in an era of sustained deficit spending. He said that that would be “quite positive” for stocks, as it would support higher corporate earnings and lower interest rates.
Deluard, an adjunct professor of finance at Saint Mary’s College of California, told BI the housing market would likely remain weak due to “poor affordability, growing supply, and high and sticky mortgage rates.”
He suggested house prices would “cool down but not crater” over the next two years, buoyed by higher construction costs, rising incomes, and low unemployment.
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