Market resilience and momentum: Insights from Jurrien Timmer
On July 7, Fidelity’s Director of Global Macro Jurrien Timmer, shared his insights on the resilience of equity markets, noting that momentum remains a key driver amid elevated valuations and a complex macroeconomic backdrop.
Here are some of the key points from his commentary.
Federal Reserve and policy outlook
The Federal Reserve is maintaining a position just above neutral, balancing inflation and employment mandates. Timmer emphasized the importance of Fed independence and cautioned against political pressure for deeper rate cuts. Historical comparisons to the 1960s and 70s suggest that easing too soon could carry risks. The Taylor Rule framework currently supports a measured approach, with markets anticipating the first rate cut later in the year.
Fiscal stimulus and earnings implications
The recently passed $5 trillion U.S. spending package, referred to as the “big beautiful bill,” includes provisions that may encourage capital investment, particularly through enhanced depreciation rules. This could support productivity and earnings over time. However, the potential impact of tariffs and rising yields remains a consideration.
Earnings and valuation landscape
Earnings growth has moderated from earlier highs but remains positive. Q2 earnings are projected to grow 2.8% year over year. Valuations, as measured by forward P/E ratios, have rebounded to higher levels. While this may raise questions about pricing, it could also reflect optimism around future earnings potential influenced by current financial conditions and a weaker U.S. dollar.
Market breadth and sector participation
Market participation has broadened modestly. Approximately 57% of stocks are trading above their 200-day moving average. While large-cap technology continues to lead, sectors such as financials and industrials have also shown strength, particularly those aligned with fiscal and industrial policy themes.
Portfolio positioning: evolving the 60/40
The traditional 60/40 portfolio remains a useful framework, though its composition may be shifting. Timmer noted growing interest in a more global 60, with international equities offering potential yield opportunities. The 40 component—bonds—faces some pressure from rising yields, prompting consideration of alternatives such as gold, bitcoin and cash.
Global considerations and currency dynamics
International investors are reassessing U.S. exposure, particularly in fixed income, due to currency hedging challenges and more competitive yields abroad. The U.S. dollar’s role as a reserve currency remains central, though its long-term trajectory is being closely watched. Discussions around de-globalization and trade with China suggest that economic decoupling will be gradual and complex.
Final thoughts
The webcast highlighted a market environment shaped by momentum, policy shifts and evolving global dynamics. While risks remain, the conversation underscored the importance of staying informed and adaptable as conditions evolve.
