FidelityConnects: Jurrien Timmer – The global macro view December 8, 2025

[00:01:43] Pamela Ritchie: Hello, and welcome to Fidelity Connects. I'm Pamela Ritchie. The time has come for summing up this whirlwind year of trade in order that we might create context for the next one. There was a shock to the system and the way the world trades with new and sometimes necessary guardrails appearing to be taking hold. Stimulus across developed countries also took hold via new channels in the form of the One Big Beautiful Bill, so-called. Spending on AI continued and expanded and cash for new infrastructure is being carved into national budgets. The equity markets and bond markets, says our next guest, produced, by and large, some huge winners through it all. Of course, there is a cyclical bull market still to question, walls of worry yet to climb, along with peeling apart the talk of bubbles. Staying invested and diversified in 2025 thus far has meant staying well ahead. Joining us now to share with you his extraordinary charts and graphs that map out the year of 2025 thus far is Fidelity Director of Global Macro, Jurrian Timmer. Warm welcome to you. Good to see you. Happy Monday.

[00:02:51] Jurrien Timmer: Nice to see you as well. Don't let my extremely short haircut be seen as any kind of metaphor for the markets because it's not. My haircutter got a little trigger-happy but that's okay.

[00:03:04] Pamela Ritchie: Looks very nice. It goes perfect for a Monday. Well just remind everyone that's joining you here, Jurrian, today that this webcast is available with live French audio interpretation so join us, of course, in either official language that you so choose. Let's begin, a little bit of context, perhaps, for last week. We're setting up for Fed meetings, the final Bank of Canada is as well, final rate decisions for the rest of the year. Is it a good moment to look back a little bit? We're not through it all yet but it's, by and large, been pretty good for a lot of investors.

[00:03:40] Jurrien Timmer: This has been a year, so far with three weeks to go, where everything, with the exception of Bitcoin but it's only down a couple of per cent and for Bitcoin that's a rounding error, but basically every asset class that I track is up for the year. It's a nice leaderboard. Bonds went from being a draw or a detractor of returns to actually a contributor. Bonds are up around 6, 7% which is a very nice result. Gold is way at the top, that's fairly unusual as well. Equities, very solid performance, and at the top of the leaderboard are Europe, Japan, EM. Again, we've been talking about this for many months, having a bigger fond to fish in, especially in an era of extreme concentration in the U.S. market, is exactly what we need. Imagine if the Mag 7 were the only game in town in the entire world and everything was a trade on that or not, hat is a very, very difficult pond to fish in. Having the Mag 7 and their concentration and then having an ocean, if you will, where you can go and and harvest returns as well is a very nice thing to see.

[00:04:59] One of the questions for next year is whether this was a one-off thing or the start of a more structural phase. My guess it's the latter. In any case for 2025 it's a great result to see. Again, other more alternative asset classes like long/short, market neutral, absolute return, all been good contributors with low correlation. It's really been a very good Sharpe ratio year where a multitude of assets have really done what they're supposed to do. In that sense I think despite all the drama politically and geopolitically I think we can chalk 2025 off as a solid year for investments.

[00:05:45] Pamela Ritchie: It's amazing. Should we pull up the leaderboard, the periodic table, perhaps, and sort of put it all into context for ... 'cause it is kind of incredible, as you say, shrugging off an awful lot of the concerns that have fed the headlines.

[00:06:02] Jurrien Timmer: I don't see it in my deck but perhaps it's in the other one. I was gonna pull it up but I'm not sure ... that's an error on my part.

[00:06:09] Pamela Ritchie: We'll leave that. That said, I think some of the questions of the shock to the system on the trade side, let's just sort of talk a little bit about that. It's not that it didn't affect the markets, it absolutely did, it's just that when all is said and done it's not as impactful as we thought.

[00:06:30] Jurrien Timmer: If we pull up slide 1, this is the both the cap-weighted market and the equal-weighted market going back to the start of the bull market in October of 2022. You can see the different slopes, of course, with the cap-weighted obviously being driven by the Mag 7, that's the blue line, and the equal weight, it's still a very respectable performance but since that, what is it now, 38 months ago since the bull market started S&P cap weighted is up 100%, S&P equal-weighted's up 59%. Both are solid performances. You can see there the tariff tantrum in April. That certainly was a big scare and the recovery from that was equally impressive. As you point out that doesn't mean that it didn't happen. The markets are always in price discovery mode and before the tariff tantrum happened and the market was sort of just kind of hoping for the best that the tariff stuff was art of the deal, that sort of thing, it had to reprice itself when the President held up that board on April 2nd with all of these reciprocal tariffs. The markets had to reprice.

[00:07:45] The markets are always pricing in whatever new information comes in even if that information ends up being transitory. The market had to price in ... the market priced in a slowdown of earnings growth. Then the tariffs sort of ... they didn't go away but certainly the worst case scenario did not materialize even though a negative scenario was priced in. That's kind of how I think about why a market recovers, the information gets better and the markets priced in for something worse and then it has to reprice yet again. Since that time the markets have been on a tear, especially cap-weighted. The equal-weighted has a more normal look to it, if you will. We're ending on a pretty high note and there's a lot to like about the markets right now. We have the Fed coming up, and we'll talk about that, but we've also had the shakeout we've talked about in the last few weeks.

[00:08:50] Slide 4 shows the non-profitable tech index and you can see how it kind of  rallied out of that base pattern when the AI stuff really got some enthusiasm going. Then a few weeks ago the tree was shaken, if you will, the low-hanging fruit was dropped out, the weak-handed longs, as we call them, and it's actually recovered quite a bit since then. To me, that kind of shakeout actually is like a palate cleanser for going into next year. What we don't want to see is the market going so over its skis that you get into bubble territory. I think the talk about bubbles that we've talked about at length for months, I think we can kind of ... it may still happen but I think this shakeout has sort of pushed that further into distance and I think that's a good thing.

[00:09:48] Pamela Ritchie: Has it pushed it far enough into the distance where where you get to the point of you ... you speak about breadth in your most recent report, but actually new new leadership. It's shaken some of those out to allow the potential for new types of leadership to emerge.

[00:10:07] Jurrien Timmer: That could well be but the way I think of it is you have the Mag 7 which are on solid footing. They're trading at I think a 32 P/E which isn't really that bad. Their rise over the last three plus years, which is fourfold, has been almost entirely supported by earnings. Those are the anchors of the AI boom, let's put it that way. The other stuff are like the cats and dogs that people like to speculate in, whether it's nuclear stocks, I'm that not calling that speculation, but kind of the more far flung corners of the market, meme stocks, nonprofitable tech, even Bitcoin miners which have a hyperscaler kind of aspect to them, those are the areas where the earnings haven't come through yet. When you get speculation it tends to kind of take those corners of the markets to extreme levels. To me, if we get a bubble that's where you're gonna see it first and then you would see it, let's say, in the valuation of Nvidia, for instance, which is trading at about 35 times earnings, which really isn't bad at all. That's how I kind of think about boom versus bubble. I mean, if the leadership ever were to change from the Mag 7 to other sectors that would be a whole different story. I don't think that's going to happen.

[00:11:36] Pamela Ritchie: It's more like changing underneath the hood of that, isn't it?

[00:11:39] Jurrien Timmer: Yes, exactly. You got the steady, strong earnings plays and then you've got these peripheral plays and that's where the speculation tends to be. It's hard to speculate on a $5 trillion stock.

[00:11:53] Pamela Ritchie:  Exactly, that has piles of cash to do pretty much what it wants in a lot of different situations. One of the things I want to ask you about, whether it is or isn't priced in for next year, is some of the tax, the deregulation pieces of the so-called One Big Beautiful Bill. Arguably, some of the tax depreciation story is in there but the deregulation aspect of it, some we've seen but some is still to be written, actually, so how could that be priced in?

[00:12:23] Jurrien Timmer: It's certainly a very powerful bill and in some ways it's different from the TCJA from 2017 in that you do have now the tax cuts, they're not new tax cuts they've just been been made permanent, but you have that expensing is a very powerful tool. You definitely have a CapEx boom underway and the deregulation side is equally important, especially now that the U.S. seems to be heading in a direction of state capitalism, if you will, just like China has done for years, and other regions as well. The U.S. government is picking winners and losers, which governments already tend to do but especially now where you have this arms race, if you will, on AI, that's a very powerful thing to see.

[00:13:15] There's another angle to this, we can pull up slide 8, and we can pivot kind of towards the Fed. We do have a regime change about to happen at the Fed and Kevin Hassett seems to be the big consensus choice now to succeed Jay Powell. Hassett, of course, is a typical Trump guy so he wants lower rate but there's already a lot of kind of buzz around what people are calling the privatization of the Fed's balance sheet. In other words, when the Fed wants to ease it does QE, when it wants to tighten it does QT, but it's all the Fed that's doing it. What I think the new leadership, or the Trump friendly people on the Fed want to do, and certainly Scott Bessent is one of those folks as well, is they want to deregulate the banks and cut rates enough to create a steep yield curve. The curve is positive but it's not very steep right now. If you can get that kind of one-two punch of a steep yield curve and less regulation for banks, the idea is that banks are gonna buy a lot more Treasuries.

[00:14:34] What you see in this chart here, this is the chart I've shown in the past, the move up in the federal debt since COVID, so $14, $15 trillion of new debt has been added. The Fed's role in that, which is the green, and, of course, in the early few years the Fed, some people would claim, monetized a lot of that new debt and then the Fed had to kind of   respond to inflation, it had to shrink its balance sheet. There's a very large gap between the debt level and what the Fed owns. In the bottom there you see what commercial banks own in Treasuries and agencies. It's taking share of the Fed's balance sheet but compared to the debt it's nothing. So there's a sense of okay, a steeper yield curve and an easier way for banks to own Treasuries through these supplemental liquidity ratios and things like that could be a way for the banks to do the Fed's job if the long end of the yield curve needs to get cleaned up.

[00:15:40] We talked about this five years ago. That's a straight page from the 1940s when the Fed was helping the Treasury fund the wartime debt during World War II and it essentially capped short rates, T-bills, at 3/8% and it incentivized the banks to basically ride the yield curve. The banks sold their T-bills to the Fed and they bought long bonds at 2 1/2% and they were getting a 200+ basis point spread. It worked beautiful. The Fed increased its balance sheet tenfold but the banks did a lot of the heavy lifting. I think this is a clear play here and that's very much where deregulation is gonna come in. For the financial sector it promises to really have some punch as well.

[00:16:28] Pamela Ritchie: Two questions out of that and the answer to both of them might be irrelevant. One is if you have banks that are much less regulated and therefore can spend, don't have to hold as much money on their balance sheets, they can go out there and buy things like Treasuries, what happens then to sort of the rise of private credit? Does it take some of the wind out of the sails there? Is it less necessary on some level? Maybe not. The other is does this help with the notion and maybe the fact that international buyers are trying to get away from the U.S. dollar? Does it solve, impact those as well?

[00:17:04] Jurrien Timmer: It solves for both. Private credit is obviously a very big story. It's a very large and growing part of the private equity space or private credit space. It's been in the headlines recently because the private credit side seems to be funding some of the AI buildout. Then it's a question of how prudent is this, or if you get delinquencies how well positioned are private lenders to play the role of a bank. It's an interesting space and it's one that a lot of people are looking towards as okay, if there's another meltdown in the financial system, another subprime, will it be in the private lending or the direct lending market? I don't have the answer to it but, by definition, these are private markets and they're probably gonna be more opaque. It's certainly an interesting area. Yes, if the leash is taken off the banks, let's put it that way, and they can expand their balance sheet more, they can do that by buying Treasuries but they can also do it by lending more money, and then you get a multiplier effect because of the reserve system. Yes, it could boost the economy and it could maybe take some share from the private lenders.

[00:18:32] On the other side, as you point out, if there is a capital flight from the U.S., and so far we haven't really seen it. Actually, if we pull up slide 9 you can see how eerily quiet the dollar has been just in the past six months since we were talking about capital flight back in April, if you remember. If you still get that spike in what's called the CVIX, which is the currency VIX, it's the VIX for the dollar, that spike was in March, April when the dollar went down during the tariff transfer when it really should have gone up, and that was a major tell. Since that time the volatility has declined and the dollar has been sitting in a range. Certainly, if there was capital flight that would presumably create a term premium in the long end of the bond market, as there were fewer buyers and sellers, the Fed would have to step in. Again, the banks, you can think of them as proxies for the Fed because they are regulated by the Fed, the banks could do a lot of that work as well, like they did in the 1940s and like they do in Japan with these big policy banks. That's definitely something to watch.

[00:19:51] Pamela Ritchie: I have a question. This is more sort of a fun question about the Fed, 'cause there's a lot of very serious questions about the Fed, not least their decision this week, going back to sort of the forward guidance, less forward guidance, should we let people know what they can expect? Is it smooth markets? It seems like that is all doing a little bit of a toe-tapping dance here right now and trying to figure out what they should be expressing for a longer medium term. What do you think is gonna change there, or will it continue to change?

[00:20:25] Jurrien Timmer: It's fascinating. Let's pull up slide 6. We've had what I would call a monolithic Fed for decades. Greenspan ran the Fed with an iron fist, the maestro he was called. Then you had Bernanke, Yellen and now Powell. We've had a Fed where there's gonna be a dissent here or there of the 16, I think it's 16 FOMC members, but generally speaking the chair runs the Fed, so that's Powell, and the Fed mostly toes the line. You can really see that change here. Again,  with with the administration wanting a more compliant Fed, if you will, because there's a lot of debt to finance, and a Trump friendly like Hassett going in, presumably, as the next chair. He's well known enough that he's not that controversial.  He's not like an MMT guy or something like that. Then, of course, you have Miran, you've got a few other people, Waller, who are on the Fed who are already kind of in that mode. You could see a Fed, and you see the dot plots there which you mentioned, that becomes much more fragmented, where it becomes like a Supreme Court where you don't have these near unanimous votes. You have highly fragmented votes where the chair has to kind of be the one to call it but you might have a nine to seven Fed or something. That's a whole different ball game. You might see the dots get more fragmented.

[00:22:09] Pamela Ritchie: Might you not see dots? I mean, is that a possibility? That hasn't been there forever.

[00:22:16] Jurrien Timmer: The next chair, yeah. I mean, the dots really were invented during the financial crisis, or in 2012 I should say, by Bernanke. They're not that old but they were invented really to help the forward guidance aspect when rates were at the zero bound. The dots really don't do anything in a normal interest rate environment other than okay, these are 16 voices. The forward curve is, essentially, the arbitrator anyway. The dots were meant as another tool to let the markets know that the Fed was not gonna move rates away from zero for long term. That's really the main reason it was created. You could argue with rates at 4, 5% it's no longer relevant. Certainly, what the next chair might decide if these dots are gonna be a mess that he's not gonna care about anyway, maybe they remove that forward guidance. It wouldn't surprise me. They really don't have a lot of value, to be quite honest, because again, you have trillions of dollars in the money markets already deciding or opining about where they think rates will be. In a more fragmented Fed that's not kind of a monolith, frankly, no one's really gonna know. There is value in that as well, right? You could argue that there's a moral hazard side to telling the markets exactly what you're gonna do over the next 6 or 12 months. Actually, there is a headline that just came up before we went on the air saying that Hassett says that this idea of the Fed guiding for the next six months is ludicrous. The Fed should just be watching the data.

[00:24:04] Pamela Ritchie: I have to say that's why I'm asking you because I was very curious what you thought of that.

[00:24:12] Jurrien Timmer: He's not wrong. The Fed wants to set the tone for what the markets can expect but there is a limit to how much of that you can do, and how much of it you should do.

[00:24:25] Pamela Ritchie: I guess just guiding the expectations of which tact you take. A couple of questions rolling in here, a number of them actually, bond sales, what are your thoughts on U.S. bond sales not going too well? Actually, they've held up in a lot of cases but what do you think of bond sales?

[00:24:43] Jurrien Timmer: We can put up slide 7 here, actually, which is a new chart. The bond market in the U.S. has been very, very quiet. The 10-year is at 4.18, which actually is up quite a bit today, but it's been around 4.00, 4.10, 4.20 for some time. That quietness is not repeated in other countries. On the left here you have policy rates, you see the Bank of Canada there, Bank of England Fed, ECB, the Chinese Central Bank, Bank of Japan. On the right you've got the 10-year benchmark yield. Japan leaps out. The Bank of Japan has tightened policy a little bit, 50 basis points, but its yield has really skyrocketed. Switzerland is way down but Europe is up. The UK is the highest yield. The U.S. actually is relatively well behaved. I'm not really sure why. I'm actually surprised both by the dollar and the U.S. 10-year, how quiet they've been. So far I think the market maybe just assumes that Scott Bessent's gonna pull a rabbit out of his hat and figure something out with the debt financing that he's too smart to bet against. We'll see. Enjoy the calm while it lasts because I do think that in the future, in the coming years there will be occasions where something like that flares up. Right now it's been very, very quiet, more quiet than I expected.

[00:26:31] Pamela Ritchie: Fidelity Connects has had a couple of conversations about EM, international investing recently. A question's coming in for you, seems to be lots of momentum in the EM space, it's just a fact, you agree, but which regions in that space are of most interest to you?

[00:26:50] Jurrien Timmer: China has certainly been hot but EM is historically tricky because it's so fragmented. You've got LatAm, you got India, you got China and they're all kind of ... they're a little bit similar but they're also quite different. If you look at the U.S. versus EAFE developed and versus EM, they're all priced for relatively different things. The U.S. is priced for 11% earnings growth for the next several years. That's reasonable if the AI boom continues. We're gonna have 11, 12% this year, we had 11% last year, expectations are for 14% next year. On that basis the risk premium in the U.S. market is around 4 1/2, which is not bad. If earnings were to kind of mean revert down to 6 or 7 the market in the U.S. would be way over its skis. So it's priced for success but that success has been materializing.

[00:27:52] Then you go to EAFE and there the market is priced for about 8 or 9% earnings growth and it's at a risk premium of about 5, 5 1/2. That's fairly typical, markets there are cheaper, they price in less growth. I think there you're kind of in the same space.  EM is priced for about 14, 15% earnings growth. The expectations are very high on the earnings side but the P/Es are low, which means that the risk premium actually is  much higher than the U.S. or EAFE. It's more like 6 or 7%. That's also fairly typical. I would say EM has a lot of upside because of the risk premium being low but it's also pricing in quite a bit of earnings growth. I view the three buckets as very complementary. I wouldn't want to have all my eggs in one of those three baskets but I would definitely have some eggs in all three at the same time. Whether you do that on a global weighting or something else is an individual decision. Like I said at the top of the show, it is nice to see the global markets participate in in a growing business cycle and an expanding market cycle.

[00:29:14] Pamela Ritchie: What would you say to investors just about the end of this year? I mean, there's sort of been the will there, won't be a Santa Claus rally and that's one piece of it. We still have some time to go, a few weeks of trade to go. You never quite know how this could all go, and there is a Fed decision. Any just words of wisdom here as we march, not quite to the end but getting there.

[00:29:37] Jurrien Timmer: I would sum it up as the market's in a pretty good place now. A few weeks ago I was a little worried, we were talking about bubbles and things started to get a little bit unravelled on the more speculative side. Right now we have solid earnings, rising estimates. We could pull up slide 2. The estimates for '26 and '27 keep rising so we have strong fundamental support for this rally. The market is expensive but at these earnings growth numbers that we're now pricing in the market is not over its skis. With the tree having been shaken of some of the speculative excesses, that kind of level sets the market also so sentiment is not over its skis. Then you get the Fed with a 99% odds in the markets of cutting rates in December. Then we'll have to see if it's what's called a hawkish cut where they say, okay, we're cutting now but don't expect anything more in the next six months. We'll have to kind of read through the tea leaves there.

[00:30:42] The long end of the bond market is quiet, the dollar's quiet and we have a global bull market. To me, that's a pretty good backdrop. In 2026 we'll see where the lines in the sand are. Again, AI boom versus bubble, bond yields, do they stay quiet, do they go above 4 1/2, that would be bad. If they go below 4 that would be bad because then you're talking about a slowing economy. Those are questions for next year. I think for now the market has good momentum into year end.

[00:31:15] Pamela Ritchie: Fantastic. We'll think of you when we hear the Fed speak and we'll ask about that next week. Thank you, Jurrian. Have a great week.

[00:31:23] Jurrien Timmer: Thank you.

[00:31:23] Pamela Ritchie: Just wanted to mention to everyone joining us, I think there's a bit of an overlay with our live French audio interpretation at the beginning. We're sorry for that. It's been fixed and worked out but sorry for that initial bump there. Coming up over the next couple of days. Tomorrow please join us for an exclusive conversation with Louis Têtu. He is former CEO and current chairman of Coveo. This is a pioneer in AI-powered digital experiences in Canada. Don't miss this opportunity to hear from one of Canada's most influential tech leaders on the strategies, breakthroughs defining the AI era, and how it ultimately could add value to your practice for your clients.

[00:31:58] On Wednesday of this week Fidelity Director of ETF and Alternative Strategies, Étienne Joncas-Bouchard. He is back for his monthly ETF roundup. He'll join us at 10:30 a.m., that's Eastern time for a French language webcast, and then at 11:30 Eastern for the Fidelity Connects regular time in English. Do join us for that. Really fascinating to see just how the power of flows into ETFs has shown. He'll break some of that down for you and which areas it's come into.

[00:32:26] On Thursday we'll be chatting with institutional portfolio manager, Ilan Kolet, as he unpacks what the final rate announcements of 2025 from the Federal Reserve, also the Bank of Canada, what they may mean for fixed income and how the Global Asset Allocation team is making portfolio adjustments, if they are, into the new year. All of that ahead this week. Thanks for joining us. Have a great start to your week. I'm Pamela Ritchie.