Earnings power and market momentum: Insights from Jurien Timmer (recorded on September 8)
Fidelity’s Director of Global Macro Jurrien Timmer, shared his insights on the current market dynamics, focusing on earnings growth, market momentum and the evolving fiscal and monetary landscape.
Here are some of the key points from his commentary.
Strong earnings growth and market momentum
Jurien highlighted that the equity market remains robust, primarily driven by technology sector leaders and accelerating earnings growth. Despite a complex macroeconomic environment, companies continue to deliver earnings growth supported by record-high share buybacks totalling $293 billion over the past 12 months. This corporate confidence, combined with expanding profit margins, underpins growth-oriented portfolios, especially those emphasizing technology and operational efficiency.
Bond yields and central bank policy outlook
Bond yields have declined to near 4%, influenced by soft employment data and market expectations of future rate cuts. The Federal Reserve’s forward curve now dips below 3%, signalling a more dovish stance that could support economic growth. Jurrien emphasized the importance of monitoring inflation and employment data, as these will guide the Fed’s policy decisions and market direction. He also noted the upcoming transition in Fed leadership and its potential impact on monetary policy.
Valuation divergence and payout strategies
There is a significant valuation gap between U.S. and non-U.S. developed markets, with U.S. equities trading at higher earnings multiples. Global payout ratios through dividends and buybacks are rising, providing a foundation for total returns across regions. Jurrien pointed out that while emerging markets tend to have lower payout ratios due to younger companies and dilution, developed markets show stronger payout growth. This trend reflects companies returning capital to shareholders amid tariff uncertainties and the AI boom, which supports margin expansion.
Fiscal dominance and market implications
The market is entering a phase of fiscal dominance, where fiscal policy increasingly influences economic growth and monetary conditions. The Federal Reserve’s dual mandate now emphasizes full employment alongside price stability, potentially leading to a weaker U.S. dollar and favourable currency dynamics for developed markets relative to emerging markets.
Long-term secular trends and selective opportunities
The secular bull market, now about 16 years old, shows signs of maturity but still offers potential for expansion, particularly with the AI-driven innovation wave. Historical cycles reveal phases of acceleration and bubbles; the current environment resembles a late-stage cycle with selective opportunities. Earnings momentum, margin trends and policy shifts are key indicators to watch. Emerging markets may offer potential alpha through targeted exposure, although payout ratios may be lower. Additionally, the banking sector’s steep yield curve presents both risks and opportunities. A balanced approach capturing both beta and alpha while adapting to fiscal and monetary changes is advisable.
Conclusion: navigating growth with strategic insight
The current market environment is shaped by robust earnings growth, expanding profit margins and dynamic shifts in fiscal and monetary policy. Valuation differences and evolving payout strategies across regions highlight the complexity and competitiveness of global markets. As the secular bull market matures and innovation accelerates, particularly in technology, ongoing attention to policy changes, sector trends and long-term cycles remains essential for understanding the opportunities and risks ahead.
