Despite a recent 5% pullback in U.S. equities, concerns about an impending bear market may be overstated. According to Bloomberg macro strategist Simon White, ample liquidity and coordinated support from both the Federal Reserve and the U.S. Treasury suggest the decline is more of a correction than the start of a systemic downturn.
The "Twin Put" Support
White argues that the market is currently protected by what he calls a "twin put"—a combination of fiscal and monetary support.
- Fiscal Put: The Treasury is injecting funds into the market through bill issuance, offsetting the Fed’s quantitative tightening (QT). Historical data shows that when net bill issuance rises relative to the fiscal deficit over three months, forward equity returns tend to outperform.
- Monetary Put: Residual liquidity—defined as real money growth in G10 economies (in U.S. dollars) exceeding real economic growth—is currently at +0.9. When this indicator is high and rising, downside risks are limited. Only when it turns negative and declining does the probability of a bear market increase.
Short-Term Pressures
Recent weakness has been tied to tightening financing liquidity, but White views this as a temporary technical disturbance. He expects the Fed to end QT in December and potentially expand its balance sheet again, injecting reserves and easing funding bottlenecks.
Market Structure Shifts
White cautions that liquidity support does not mean an immediate bull run. Instead, the market is showing signs of rotation:
- Value stocks are outperforming growth.
- Defensive sectors such as healthcare are leading cyclical names.
- Investors are repositioning portfolios rather than chasing momentum.
This suggests a more nuanced environment, where gains are possible but not uniform across sectors.
AI and Broader Themes
Another notable shift is the evolution of the AI investment theme. Market enthusiasm has cooled from simply "selling AI" to focusing on applications that drive measurable productivity. This transition reflects a broader confidence in AI’s role as a structural growth driver, even as speculative excesses fade.
The Bottom Line
Simon White’s analysis underscores that the current correction is not a harbinger of a bear market. With fiscal and monetary policies acting as dual safety nets, liquidity remains abundant. For investors, the message is clear: rather than panic, use corrections as opportunities to reposition or add exposure in sectors supported by liquidity trends.