Markets at a crossroads: Insights from Jurrien Timmer
On June 9, Fidelity’s Director of Global Macro Jurrien Timmer, shared his insights on trade tensions, rising bond yields and questions around asset allocation.
Here are some of the key points from his commentary.
Trade tensions return to the spotlight
The conversation began with a focus on trade. Recent tariff announcements have reintroduced volatility, with investors questioning whether this is the start of a broader trade conflict or a temporary disruption. A 90-day cooling-off period has provided some relief, but the outcome remains unclear. Markets appear to be adjusting, showing less sensitivity to policy headlines than in the past. There’s a growing sense that what’s said one day may be reversed the next.
Fiscal dominance and bond market pressure
Beyond trade, the discussion turned to fiscal dynamics. Rising deficits and reduced central bank support are contributing to higher long-term bond yields globally. In the U.S., the 10-year Treasury yield is trading around 4.5%, with some models suggesting it could move closer to 5% as term premiums normalize. This shift has implications for equity valuations and government borrowing costs. When bond yields begin to rival equity returns, the investment landscape changes.
Rethinking traditional portfolio models
The traditional 60/40 portfolio is being re-evaluated. With the historical negative correlation between stocks and bonds breaking down, some investors are exploring a 60/20/20 structure that includes alternative assets. There’s also a push to diversify equity exposure more globally, reducing reliance on U.S. markets. This reflects both valuation concerns and the potential for international markets to play a larger role.
Market recovery and earnings outlook
Despite policy uncertainty, the equity market has shown resilience. The S&P 500 has staged a strong recovery, though participation has been uneven. Only about half of the index is trading above its 200-day moving average. Meanwhile, earnings estimates for the second half of the year have been revised lower, partly due to tariff concerns. However, recent economic data has been solid, and there’s a case to be made that some of the downward revisions may have been premature.
Global equity leadership may be shifting
International markets are showing signs of strength. The MSCI EAFE Index has seen broad participation, and the MSCI All Country World Index is back near its highs. While U.S. equities still dominate global benchmarks, the gap between U.S. market cap and its share of global GDP is wide. If U.S. earnings growth slows and international markets benefit from fiscal support, the long-standing U.S. premium could begin to narrow.
Currency signals and the role of gold
Despite strong U.S. rate differentials, the dollar is trading near its lows. This divergence may reflect deeper concerns about fiscal sustainability. At the same time, gold is gaining attention as a potential store of value. Described as the “new long bond,” gold is responding to the same macro forces shaping bond and currency markets. Silver and bitcoin are also participating in this trend, though with different characteristics.
Conclusion
Markets are adapting to a new set of conditions. Trade policy, fiscal dynamics and global growth trends are all in motion. While the outlook is mixed, the themes discussed here offer a useful lens for evaluating portfolio strategy. Flexibility, diversification and a global perspective may be increasingly important in the period ahead.
