Fed To Drop Market By 20%? | Darius Dale
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Darius Dale is worried, in the short term, about a near-term correction in stocks.
He calculates that it's more likely than not the Federal Reserve will tighten this fall in order to appease the bond market and set itself up to start easing in early 2027.
But to do that, in the immediate term, it will likely spook markets by hiking (and perhaps reducing its balance sheet) soon.
It wouldn't surprise him to see stocks fall by 20%.
But he expects the pain to be short-lived.
Once the Fed reverts to easing again, he expects stocks to quickly soar back to new highs.
For all the details on his projections, watch this video.
#federalreserve #bonds #marketcorrection
0:00 – Recap of prior view: still longer-term bullish but rising short-term correction risk
2:05 – Administration’s “run it hot” strategy and the eventual “print” playbook
2:49 – External pressures the Fed can’t control (oil, hyperscalers, foreign Treasury selling)
4:31 – Core thesis: geopolitically driven supply-demand imbalance in the Treasury market
6:39 – Yes, these dynamics will ultimately force the Fed to print
7:34 – Market-implied neutral rate has jumped 50–75 bps
9:32 – Fed will need to tighten; prefer balance-sheet tightening over rate hikes
11:16 – Macro weather model still net positive for risk assets
12:04 – Paradigm C (“run it hot”) remains the dominant regime
14:22 – Near-term risk that the monetary-policy cycle flips to a headwind
14:53 – Path to a 1998-style 15–20% correction
16:40 – Global bond yields at multi-year highs signaling rising r-star
17:37 – Structural slowdown in the growth of global savings
19:13 – Explosive AI capex competing for limited capital
19:54 – True interest expense and the politically protected two-thirds of federal spending
22:42 – Not calling for recession; private-sector growth still running hot
24:14 – Growth expected to moderate over the next 12 months (peak in 2026)
27:11 – Biggest near-term risk: Fed ignores the bond market’s clear signal
27:38 – Fed must “play action pass” to regain credibility before structural easing
32:09 – Higher yields are economically sustainable (via crowding out the private sector)
34:17 – Rising political risk: younger generations feel the American Dream is broken
41:45 – Once credibility is restored, the Fed can ease more aggressively
45:05 – Quantitative models (KISS & Dr. Mo) have already begun de-risking
56:24 – Surprise dovish Q3/Q4 Treasury refunding may help avoid a sharp correction
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