Understanding market volatility through earnings and valuations: Insights from Jurrien Timmer - April 20, 2026

Earnings remain the primary support

Corporate profits have been growing at a high‑teens pace, with year‑over‑year growth close to 20 percent and calendar‑year expectations around 17 percent. That earnings backdrop has provided key support as prices moved lower. The S&P 500 declined by just under 10 percent at its recent low. Valuations, however, adjusted more sharply. The market’s price‑to‑earnings ratio fell by roughly 19 percent, reflecting a reset in how much investors are willing to pay for each dollar of earnings. Jurrien emphasized that valuations matter more than price alone. In this case, earnings did not collapse alongside valuations. Instead, the pullback largely reflected a repricing of risk rather than a deterioration in underlying fundamentals.

Valuations adjusted faster than fundamentals

Periods where valuation multiples fall while earnings continue to rise are relatively uncommon, but not without precedent. Jurrien pointed to several historical examples where this combination appeared, noting that outcomes varied depending on the broader economic backdrop. In many cases, markets performed well in the year that followed. In others, similar conditions marked the early stages of a more prolonged downturn. The key takeaway is context. Strong earnings can help markets recover from corrections over time, but they do not eliminate the possibility of further volatility. Today, valuations remain below recent highs while earnings growth has persisted. That balance may allow markets to refocus on fundamentals, though it does not rule out additional drawdowns along the way.

Oil shocks and what history suggests

Energy prices remain a critical swing factor for markets. Recent market behaviour suggests investors may be assuming a relatively short‑lived oil shock, similar in duration to the 1990 Gulf War period, when prices rose sharply and then retraced just as quickly. Jurrien contrasted that episode with longer disruptions, such as the post‑pandemic energy shock in 2022. That period coincided with rising interest rates and produced a more durable correction. Which path ultimately unfolds today depends largely on how long supply disruptions persist. If oil prices remain elevated for an extended period or global supply chains face continued disruption, the economic effects could compound over time. These impacts extend beyond energy costs alone and may filter into transportation, manufacturing and inflation.

Geopolitics continues to shape risk

Tensions in the Middle East, particularly around the Strait of Hormuz, remain central to the outlook. Jurrien noted that duration matters more than individual events. The longer a disruption lasts, the greater the potential for lasting damage to supply chains. Markets have absorbed a significant amount of uncertainty so far, but they continue to respond to changes in the severity and length of these pressures rather than to headlines alone. He also highlighted uneven regional impacts. Energy‑exporting countries may be better positioned at a national level, while consumers still face higher costs driven by globally priced commodities. The difference between economic output and household sentiment remains an important distinction.

Rethinking diversification in a changing market

Another key theme is the evolving relationship between stocks and bonds. Bonds are no longer playing the same defensive role they once did, particularly in an environment where fiscal pressures are high and yields are more volatile. During recent bouts of market stress, stock and bond prices have moved in the same direction, reducing some of the diversification benefits investors have historically relied on. Jurrien stressed the importance of looking beyond traditional stock‑bond portfolios. Assets with lower correlation to both equities and bonds, such as commodities, gold, cash and certain alternative strategies, can help manage risk. He framed diversification as a flexible framework rather than a fixed allocation, emphasizing that portfolio construction depends on individual circumstances. Equally important is discipline around rebalancing. Maintaining target allocations over time allows investors to add risk after declines and trim risk after strong rallies without relying on short‑term forecasts.

Reading liquidity signals carefully

Large balances in money market funds continue to draw attention, but Jurrien cautioned against focusing on dollar amounts alone. He prefers to look at money market assets relative to the overall size of the equity market. By that measure, cash levels appear close to historical norms rather than extreme positioning. As a result, current money market balances do not send a strong signal in either direction.

Conclusion: Balancing earnings strength with ongoing uncertainty