FidelityConnects: Jurrien Timmer – The global macro view November 17, 2025

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Hello, and welcome to Fidelity Connects.

 

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I'm Pamela Ritchie. With market concentration and top heaviness

 

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a reality how narrow is the path forward for

 

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investors to tread?

 

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There is an argument for harvesting beta, certainly, but there's

 

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also the presence of powerful stimulus in U.S.

 

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markets from a loosening Fed and benevolent tax policy,

 

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both of which can propel equity markets further into the

 

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horizon. This propulsion is evident overseas as well as

 

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in the U.S. allowing investors the choice to diversify

 

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via region. Joining us for his brilliant take on

 

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the beginning of a big, even the biggest week for U.S.

 

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and maybe global earnings is Fidelity Head of Global Macro,

 

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Jurrien Timmer. Warm welcome to you Jurrien Timmer, how are you

 

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today?

 

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I'm well. Actually, not to steal the show for a moment

 

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but do you remember five and a half years ago when we started the

 

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show I had this little guy in the back as

 

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an homage to my daughter who was

 

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basically six months out of nursing school at the time and thrust

 

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into the whole COVID thing, treating COVID patients

 

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in the ICU in Boston.

 

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I always had this and, literally, five minutes ago after

 

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we even spoke I got word from her that she has been

 

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accepted into graduate school to become a nurse practitioner

 

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specializing in psychology, which is a very, very

 

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good specialized, and lucrative field, by the way.

 

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She's going to be training to go out of the ICU into

 

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a nurse practitioner role which does

 

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a lot of the doctor-heavy lifting stuff these days.

 

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I'm very, very proud of her so just Bruno back

 

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there.

 

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Bruno back there has been watching over her.

 

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That's incredible. I do remember you saying she was very young and

 

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just but great, she was a body, she was a nurse and they just took

 

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her right into the COVID whirlwind.

 

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Wow. How proud you must be and aren't we grateful to her.

 

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We're switching a little bit but take us through the argument

 

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for whether those taking gains, and there are some big names

 

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in the market taking gains right now, there's no question, literally

 

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household names taking lots of gains, is that enough to interrupt

 

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this sort of benevolent trace or march forward for

 

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a concentrated market?

 

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I think so. What we're seeing, of course, it's

 

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been a banner year for at least the cap-weighted

 

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index. The S&P is up 14,

 

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15% year-to-date.

 

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The Mag Seven are up 21%.

 

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The equal-weighted index is up

 

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6 1/2%. So even going down cap it's hard

 

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to complain about a year like that.

 

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Of course, non-U.S. stocks are up 15, 18,

 

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25%. It's been a good year.

 

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It's not over, of course.

 

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It's, obviously, understandable that investors

 

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will take some profits. I think that actually is a good thing

 

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because one of the conversations we've had for weeks now is

 

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the question that is asked of me all the time, is this

 

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AI thing becoming a bubble?

 

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Certainly, some of the more speculative momentum plays

 

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like SPACs and non-profitable tech.

 

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Even the Bitcoin miners which

 

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have kind of gotten into the hyperscaling business a little bit, they

 

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were flying pretty high. Some of the P/Es, the P/E on

 

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the meme stocks was almost 300 X a few

 

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weeks ago. That is what got the conversation going

 

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about is this a bubble, are we going into silly season and are

 

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we gonna end this bull market like the

 

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one that ended in March of 2000 which, of course,

 

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was not a happy ending.

 

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The fact that the momentum is sort of getting unravelled

 

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here a little bit, Bitcoin is at 94,000 and some

 

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of these meme stocks and non-profitable tech are down

 

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10, 20, 30%. For me, actually,

 

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not for me personally but I I think that's actually a good thing

 

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because the more we can have these corrections along the way

 

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the less likely it is that it becomes this uninterrupted

 

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parabolic move that eventually just implodes on itself.

 

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I'd rather take some pain along the way than

 

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having it be this unsustainable thing that just collapses and

 

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then the market's down 50% or whatever.

 

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As much as it hurts, and it really hasn't hurt the

 

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overall market, I mean, the S&P was actually unchanged last

 

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week, but it's the fringes of the markets where

 

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there was a lot of momentum and that's kind of getting the

 

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air sucked out of it.

 

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I think all in all it's not a bad backdrop.

 

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I mean, earnings have been very strong, third quarter earnings

 

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season, we can pull up slide 4, really a

 

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very, very strong season. The earnings growth rates started

 

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at 7%, ended at 15.

 

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That's an 800 basis points bounce.

 

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That is pretty impressive and, certainly,

 

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much stronger than the average bounce.

 

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So the earnings side is there.

 

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The valuations are not really amplifying those earnings anymore

 

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which I think is a good thing.

 

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Too much valuation multiple expression is not sustainable.

 

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I think there's a lot going on under this surface.

 

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We can pull up slide 3 real quick just to show you the

 

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non-profitable tech stocks.

 

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You can see it went from 255 to

 

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200 to 201, that's a meaningful correction, but

 

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that comes after a more than double.

 

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I look at this in the big picture and

 

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I say, okay, that's all right.

 

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They probably shouldn't have run that much in the first place.

 

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When you take a look at that question of sort

 

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of losing a little bit of the momentum

 

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I guess there's no reason to think that some of those household names

 

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that we sort of talked about at the beginning, big names taking

 

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gains, I mean, there's no reason to think that they won't use some of

 

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these moments where there  are wobbles to go back into some of them.

 

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Is that reasonable?

 

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I think it is. I mean, it's been a

 

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pretty monumental year.

 

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Remember, we had a 21% decline in March and

 

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April with the tariff tantrum and here we are still up

 

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double digits. I mean, it's kind of one of those roller coaster

 

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years which, in a way, we kind of predicted

 

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because 2025 was sort of promising to be

 

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a very tail-oriented year, markets

 

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lurching from left tail to right tail, back to left, back to right.

 

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You can't blame anyone for taking some chips off the table especially

 

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among this bubble talk. Again,

 

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I think, it's actually a good thing because you don't

 

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want people just piling in and then you get to that final

 

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parabolic blow-off. That never ends well, it never

 

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has, never will. This, I think, is much better.

 

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To your point, if we go to slide 1 for a

 

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second, the big leaders, the Mag Seven, the

 

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hyperscalers, they're levelling off

 

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right now, you can see that in the upper right side,

 

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but that's been after a monstrous run.

 

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They're up fourfold since the bull market

 

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began in 2022.

 

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This is not a bad thing that they kind of sit there for a

 

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while while we all sort of figure out what this AI thing,

 

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I mean, we know what it's about but how

 

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much is too much in terms of capital spending, what's

 

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the ROI going to be on all of that infrastructure, the trillions

 

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of dollars that are being spent, will investors ever

 

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see those returns, and what is going to the killer app that

 

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eventually, hopefully, lets the economy reach

 

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escape velocity to have this productivity led boom

 

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that hopefully allows the U.S.

 

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and other parts of the world to outgrow this huge debt burden

 

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that we have all over the world.

 

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That's my sense. Again, I get the

 

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question a lot about are we sort of in the final

 

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throes of the internet bubble and are we going to end up the

 

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same way?

 

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I think the answer is at least no but maybe not yet.

 

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One of the things I want to show is slide 10 which is

 

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a chart I just created.

 

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That shows the 5-year rate of change on

 

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earnings in the blue and the 5-year change in

 

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the P/E in the pink.

 

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You can see back in '98, '99, 2000

 

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that earnings growth was falling,

 

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it wasn't declining but it was decelerating at

 

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the same time that the P/E was really starting to dominate.

 

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We haven't seen that. Earnings growth is very much accelerating

 

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still. It's at the same level, actually, as it was in 1998

 

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but the P/E is not, you know, you would need to see the earnings side

 

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get replaced by the P/E side, and we're not there yet.

 

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I do think that we have time for this thing to run some

 

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more.

 

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The valuation, according to that, is not really the story.

 

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The valuation is not taking over.

 

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Valuation is not yet a problem.

 

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The Mag Seven are trading at 35 times earnings which is

 

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not cheap but it's not crazy.

 

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I don't have the chart this week but I had a chart last

 

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week that showed that back in

 

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'98 to 2000, which I think is kind of the the parallel

 

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that fits. Actually, we can pull up slide 7 to show that.

 

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It does look similar.

 

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The '98 low which was long term capital

 

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was a very high momentum recovery

 

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further accentuated by three

 

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rate cuts by Alan Greenspan at the time.

 

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The current cycle, the tariff tantrum in April, the

 

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very high momentum recovery since then, Powell has

 

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cut twice already, maybe a third time, so very

 

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similar with the caveat that, of course, history never

 

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repeats that closely.

 

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But if you go back then in '98, if Cisco was

 

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the poster child of the do-com

 

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bubble and Nvidia is currently the

 

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poster child of the AI boom, back then Nvidia

 

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was trading in '98 at a P/E of

 

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50 and it went to a P/E of 215

 

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at the top.

 

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Nvidia is at 35 to 50

 

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P/E today, depending on whether you use trailing or forward earnings.

 

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We are nowhere close valuation-wise to kind

 

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of the crazy season we saw back in 2000.

 

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Doesn't mean we're not gonna get there but at this point the earnings

 

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really are justifying most of the gains for the companies that have

 

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earnings. Again, you go to the non-profitable tech, which I showed

 

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earlier, that's a different story but those are generally

 

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side shows.

 

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Those will get the air taken out of them from time to time and it's

 

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really not the worst thing in the world.

 

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I mean, if people want to trade those stocks that's fine but

 

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that those kinds of names should never be the backbone of

 

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an investment portfolio.

 

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Hello, investors. We'll be back to the show in just a moment.

 

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else you get your podcasts. Now back to today's show.

 

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Sure, and, I mean with, we were saying perhaps the

 

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biggest earning story is this week.

 

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You mentioned Nvidia, that's what's coming out.

 

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There's this question of whether earnings get punished and if they

 

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then lead to the ripple effects that come from that.

 

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It's also maybe just a headline to trade volatility.

 

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I'm kind of wondering how you put that in context.

 

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It is certainly true that the market is

 

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priced for success. We can pull up slide 9 which is a new study

 

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that I did instigated by the great David

 

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Wolf, who I call the Wolf Man.

 

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He asked the question and I did the study.

 

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When you look at a discounted cash flow model

 

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and you look at what earnings growth is expected by looking at

 

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Wall Street estimates, currently the market is expecting 11%

 

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earnings growth for the next let's say three to five years.

 

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The historical average is seven so it's expecting more than average

 

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but that's probably part of the AI boom.

 

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It could be part of that One Big Beautiful Bill, what have you.

 

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For the market to be priced correctly for

 

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that 11% it requires a risk

 

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premium, which is essentially the spread, the

 

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premium that investors get over and above the risk-free asset, or

 

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the safe asset, to get the equity return, you need

 

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about a 3.8% ERP for that.

 

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It's not the lowest ever

 

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but it is well below average.

 

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The average is 5% historically so investors historically have

 

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gotten 500 basis points over and above the risk-free asset

 

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by investing in equities.

 

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If you were to normalize the risk premium to

 

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what historically has been the average basically

 

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what that means is the market is expecting, is priced for

 

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18% earnings growth even though the expectation

 

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is 11. That's kind of where the risk is,

 

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that the market is priced for success.

 

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It's expecting 11% but it's priced for $18.

 

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Again, not the end of the world, it's not a reason to sell

 

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necessarily but if you want to have an

 

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example of is too much priced in that

 

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would be the example.

 

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But you compare that to the late' 90s on

 

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the left, that was even a bigger extreme.

 

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There at that point in March of 2000, at the top,

 

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you look at the old earnings estimates and what was expected was

 

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17% earnings growth instead of today's 11.

 

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But the market was priced for 25% earnings growth.

 

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Now, again, historically, you get 7%.

 

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At the top the market was priced 25%

 

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growth and, of course, we know what happened.

 

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The market imploded and we did not get 25%, we got

 

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negative growth. That's just a clever way, I think,

 

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of showing what is the margin of

 

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... what needs to happen for this market to not fall

 

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down. Back then you know that was an impossibly

 

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high hurdle to clear.

 

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I wouldn't say the hurdle is impossibly high today but it is, you

 

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know, the market is priced for success and there's no question around

 

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that.

 

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You talk about, in a recent report, the two different

 

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tails, and you're taking a look, so this is the AI, the earnings, the

 

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discussion of where that all fits and whether it's overpriced.

 

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The other is really the monetary policy and

 

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you have a so-called benevolent Fed cutting and so on.

 

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In Canada, which isn't necessarily something you would be following

 

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this morning, but we had a whole bunch of rate cuts early on, then

 

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just sort of holding and lo and behold we've got one print

 

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of CPI coming with higher than expected

 

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inflation still in the zone but the discussion

 

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of inflation lurking and what that

 

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ultimately does to policy going forward.

 

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There's more discussion about the Fed cutting again.

 

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It's really a ball in the air.

 

16:40.666 --> 16:44.103

At one point on Friday I think it was 50/50.

 

16:44.103 --> 16:47.072

Tell us a little bit about the inflation story as you see it and

 

16:47.072 --> 16:51.744

obviously the reaction from monetary policy to that.

 

16:51.744 --> 16:54.980

I think the story goes farther than that even.

 

16:54.980 --> 16:57.349

The inflation story, of course, is very important.

 

16:57.349 --> 17:01.153

The Fed has a dual mandate, price stability at 2%

 

17:01.153 --> 17:03.722

and full employment.

 

17:03.722 --> 17:07.192

The CPI, the core CP, the core PCE, they're all

 

17:07.192 --> 17:10.729

at around 2.8 to 3%.

 

17:10.729 --> 17:14.199

It's not the end of the world. The stock market

 

17:14.199 --> 17:17.403

is not bothered by 3% inflation.

 

17:17.403 --> 17:21.273

Even the bond market which is at 4.13%

 

17:21.273 --> 17:25.277

right now, even at 3% inflation investors are getting

 

17:25.277 --> 17:28.814

about 110 basis points over the inflation

 

17:28.814 --> 17:32.751

rate. It's not the highest ever but it's certainly better than

 

17:32.751 --> 17:36.221

nothing or a negative spread. The market

 

17:36.221 --> 17:39.958

is not way mispriced if inflation stays at

 

17:39.958 --> 17:44.063

3, if 3 becomes the new

 

17:44.063 --> 17:46.598

2, then it becomes a question of the balance between the mandates.

 

17:46.598 --> 17:50.669

Clearly, the jobs data, they're not contracting

 

17:50.669 --> 17:53.806

but they've been softer than I think most people expected.

 

17:53.806 --> 17:56.175

You had that big benchmark revision.

 

17:56.175 --> 17:59.611

Clearly, this has gotten the attention of the Fed.

 

17:59.611 --> 18:03.182

I think that was the motivation for the Fed to

 

18:03.182 --> 18:08.687

cut rates twice over the last few months.

 

18:08.687 --> 18:13.459

If inflation doesn't go any lower than 35 it

 

18:13.459 --> 18:16.361

does put a floor on how much the Fed can lower rates.

 

18:16.361 --> 18:20.699

If the jobs market stays

 

18:20.699 --> 18:24.203

okay, and our internal data suggests that, yes, it's soft, but

 

18:24.203 --> 18:27.639

it's not falling off a cliff by any means, then

 

18:27.639 --> 18:31.009

you could argue that the Fed can't really go much further.

 

18:31.009 --> 18:35.147

The Fed's at 3 7/8, if neutral is

 

18:35.147 --> 18:38.650

inflation plus, let's say, 100 basis points, which

 

18:38.650 --> 18:42.287

will be R-star, then you're at 4 and the Fed is at

 

18:42.287 --> 18:45.124

3 7/8, that means the Fed is at neutral.

 

18:45.124 --> 18:48.594

It's interesting because the Fed is getting a little bit more

 

18:48.594 --> 18:52.164

bifurcated. You have the new wing, kind of like

 

18:52.164 --> 18:55.801

the Trump wing of the Fed, Stephen Miran and

 

18:55.801 --> 18:59.271

the various folks on the Fed that are lobbying for the

 

18:59.271 --> 19:03.008

job of the fed chair, they all want lower rates because

 

19:03.008 --> 19:05.577

that's what the president wants.

 

19:05.577 --> 19:09.181

You're starting to get more vocal voices

 

19:09.181 --> 19:12.618

via speeches and papers and things like that about,

 

19:12.618 --> 19:16.088

you know, we're about as low as we can go because inflation

 

19:16.088 --> 19:18.157

has not been defeated.

 

19:18.157 --> 19:21.793

As Powell gets towards the end of his term, which is not for another

 

19:21.793 --> 19:25.230

six months, my guess is you're gonna get more and more

 

19:25.230 --> 19:28.901

vocal, it's not really dissent but people

 

19:28.901 --> 19:32.571

are gonna be more vocal about where they think it's gonna be.

 

19:32.571 --> 19:36.208

We may very well end up with a Fed that is not

 

19:36.208 --> 19:39.912

like the Powell Fed or the Greenspan Fed or

 

19:39.912 --> 19:43.682

the Bernanke Fed where it was really the chair of the Fed

 

19:43.682 --> 19:47.186

setting the tone, made the decision, and then the

 

19:47.186 --> 19:49.087

rest of the board would go along.

 

19:49.087 --> 19:52.591

Once in a while you have a dissent, like we have with Miran

 

19:52.591 --> 19:56.195

now,  but it might be really a more democratic

 

19:56.195 --> 19:59.898

Fed where you're gonna have votes that are eight

 

19:59.898 --> 20:02.167

to six or something like that.

 

20:02.167 --> 20:05.704

That could be problematic because the Fed would

 

20:05.704 --> 20:09.308

no longer be executing policy with

 

20:09.308 --> 20:13.011

a single mindset, but in a way it's also good because why

 

20:13.011 --> 20:16.915

should one person be able to decide the world,

 

20:16.915 --> 20:17.082

right?

 

20:17.082 --> 20:20.752

It was always that question of, you know, it really comes

 

20:20.752 --> 20:24.289

down to one, you know, to sort of how one person, which in

 

20:24.289 --> 20:28.126

hindsight it probably isn't very democratic.

 

20:28.126 --> 20:31.230

It's just interesting as things shift and change you start to see

 

20:31.230 --> 20:36.868

some of the things that were assumptions for a long time.

 

20:36.868 --> 20:40.472

This happened under Greenspan, he was the maestro, he really

 

20:40.472 --> 20:42.808

ran a tight ship.

 

20:42.808 --> 20:46.311

If you were going to dissent against what he wanted you could

 

20:46.311 --> 20:48.981

but you better had a really good reason.

 

20:48.981 --> 20:52.451

I think maybe the new Fed

 

20:52.451 --> 20:56.355

that will be less so, that people will feel more emboldened

 

20:56.355 --> 20:58.190

to voice their opinion.

 

20:58.190 --> 21:01.326

It will be kind of like the Supreme Cour where you rarely have a

 

21:01.326 --> 21:03.195

unanimous decision.

 

21:03.195 --> 21:06.732

It's probably not the worst thing in the world but it is

 

21:06.732 --> 21:10.469

something to consider, especially when you think about the term

 

21:10.469 --> 21:14.506

premium on bonds and what's priced in

 

21:14.506 --> 21:18.944

in terms of the forward rate and what that means for other assets.

 

21:18.944 --> 21:22.681

It might create a little bit more of a risk premium for assets

 

21:22.681 --> 21:26.385

everywhere if you don't have quite that monolithic

 

21:26.385 --> 21:27.719

voice anymore.

 

21:27.719 --> 21:31.757

So interesting. Back to the discussion of momentum and just maybe

 

21:31.757 --> 21:33.792

slowing momentum in certain areas.

 

21:33.792 --> 21:36.161

Particularly, there's a question rolling in here, what are your

 

21:36.161 --> 21:39.631

thoughts on Bitcoin, the broader crypto space, given the

 

21:39.631 --> 21:43.135

volatility? Does it fit in with it's not so bad if it

 

21:43.135 --> 21:46.972

comes down a little and maybe avoids

 

21:46.972 --> 21:48.674

a big slide or something along those lines.

 

21:48.674 --> 21:51.910

Does it fit with that story?

 

21:51.910 --> 21:56.281

Let's go to slide 11, so 11

 

21:56.281 --> 22:00.719

is kind of the leaderboard, the

 

22:00.719 --> 22:05.257

chessboard. These are three-month

 

22:05.257 --> 22:08.560

returns taken at three-month intervals.

 

22:08.560 --> 22:13.198

You see gold, Japan, EM, commodities, Mag Seven,

 

22:13.198 --> 22:17.436

hedge funds, China, all at the top.

 

22:17.436 --> 22:20.772

When you think about it, at the beginning of the year that's kind of

 

22:20.772 --> 22:23.608

what we suspected would be at the top.

 

22:23.608 --> 22:25.644

Non-U.S.

 

22:25.644 --> 22:29.348

equities finally have their moment

 

22:29.348 --> 22:31.383

in the sun, and I think that will continue.

 

22:31.383 --> 22:37.289

You see Bitcoin is now at the bottom, gold is at the

 

22:37.289 --> 22:41.526

top. That is a very unusual place.

 

22:41.526 --> 22:45.731

If we go to the next slide, I have a couple of new charts here, one

 

22:45.731 --> 22:48.300

shows various price momentum curves.

 

22:48.300 --> 22:51.970

Again, you see momentum for gold is very strong

 

22:51.970 --> 22:54.873

and actually still rising even though gold has had a correction as

 

22:54.873 --> 22:58.243

well. Bitcoin is at the bottom there.

 

22:58.243 --> 23:01.680

If we look at the same thing but now on slide 13

 

23:01.680 --> 23:05.517

by looking at Sharpe ratios, Sharpe ratio is the

 

23:05.517 --> 23:09.921

52-week return divided by the 52-week volatility

 

23:09.921 --> 23:12.057

or standard deviation of returns.

 

23:12.057 --> 23:16.128

Again, you see gold is performing

 

23:16.128 --> 23:19.965

very strongly on a risk-adjusted return basis and Bitcoin very

 

23:19.965 --> 23:21.733

poorly.

 

23:21.733 --> 23:27.272

Answering the question, if we go to

 

23:27.272 --> 23:30.842

slide 16 you see kind of a

 

23:30.842 --> 23:34.446

close-up of gold. Again, in the bottom I show

 

23:34.446 --> 23:37.182

... the last two charts I showed were momentum curves and Sharpe

 

23:37.182 --> 23:40.485

ratio, the bottom panel here shows the same thing.

 

23:40.485 --> 23:43.955

The momentum curve is the pink line, the Sharpe Ratio is

 

23:43.955 --> 23:46.291

the orange line. This is for gold.

 

23:46.291 --> 23:50.128

You can see that gold is kind of at a level where you

 

23:50.128 --> 23:53.398

can argue it is over-earned, if you will.

 

23:53.398 --> 23:57.068

If you think about harvesting crops after

 

23:57.068 --> 24:00.539

a lean year or an abundant year, this has been abundant

 

24:00.539 --> 24:02.641

so maybe gold is over-earning.

 

24:02.641 --> 24:06.077

If we go to slide 18 you see for Bitcoin

 

24:06.077 --> 24:10.482

it's the polar opposite, Bitcoin is under-earning.

 

24:10.482 --> 24:14.085

I do think that there's a mean reversion there coming.

 

24:14.085 --> 24:17.522

I thought that was gonna come two weeks ago, it hasn't so

 

24:17.522 --> 24:21.126

Bitcoin clearly is caught up in this momentum flush, if you

 

24:21.126 --> 24:25.363

will. If you look at slide 19, which is Bitcoin's

 

24:25.363 --> 24:28.967

price against the power law curve

 

24:28.967 --> 24:32.838

of its network, which is the blue,

 

24:32.838 --> 24:36.341

it's still on there. It's not failing but

 

24:36.341 --> 24:40.145

what you can see is that the new highs are less explosive

 

24:40.145 --> 24:43.415

now than they were, and I think that's normal.

 

24:43.415 --> 24:47.486

It's a good thing because Bitcoin has grown up

 

24:47.486 --> 24:51.122

and therefore the moons are not going to be as big as the early days.

 

24:51.122 --> 24:54.726

That's what you want to see in a mature asset class,

 

24:54.726 --> 24:58.730

or a maturing asset class, as that blue curve

 

24:58.730 --> 25:02.467

starts to get a little flatter as you get further along the adoption

 

25:02.467 --> 25:05.904

curve this is what you would expect to see and is what you

 

25:05.904 --> 25:09.441

should see. The highs are less high, the lows are.

 

25:09.441 --> 25:12.277

hopefully. less lows. I don't think we're gonna have an 80% drawdown

 

25:12.277 --> 25:15.847

but we're already at 25 plus.

 

25:15.847 --> 25:18.016

We'll see where it goes.

 

25:18.016 --> 25:21.586

If we get down into maybe the 80s or so for

 

25:21.586 --> 25:23.388

me that's gonna be a good reentry point.

 

25:23.388 --> 25:26.925

That's really interesting. In terms of the floor

 

25:26.925 --> 25:29.127

it's still, I mean, it's still high when you consider how quickly

 

25:29.127 --> 25:31.029

it's gone. It's massive.

 

25:31.029 --> 25:34.499

A couple of other questions here. You mentioned diversifying or the

 

25:34.499 --> 25:38.136

best diversifier might be the global story and the opportunities

 

25:38.136 --> 25:40.071

therein. What are your thoughts on EM?

 

25:40.071 --> 25:43.508

EM, particularly debt actually,

 

25:43.508 --> 25:47.178

it has been quite a journey for it this year as well

 

25:47.178 --> 25:50.849

but as we know EM is sort of intrinsically perhaps

 

25:50.849 --> 25:54.653

a little bit less stable.

 

25:54.653 --> 25:58.456

If we look at slide 14, my favourite

 

25:58.456 --> 26:00.325

has been non-U.S.

 

26:00.325 --> 26:01.960

developed, so EAFE.

 

26:01.960 --> 26:06.364

Not that I don't like EM but EAFE's success story right now,

 

26:06.364 --> 26:09.901

mostly Japan but also Europe, is that companies there have

 

26:09.901 --> 26:13.972

unlocked shareholder value by buying back more shares,

 

26:13.972 --> 26:18.176

by shuttering unprofitable divisions, etc.

 

26:18.176 --> 26:21.913

The payout, the share of earnings return to investors

 

26:21.913 --> 26:25.417

in one way or the other gas really risen quite a

 

26:25.417 --> 26:28.887

bit and has become very competitive with the U.S., even

 

26:28.887 --> 26:31.656

on a cap-weighted basis in the U.S.

 

26:31.656 --> 26:35.093

That to me has been a very powerful success story.

 

26:35.093 --> 26:38.263

EM by definition doesn't have that because these companies are

 

26:38.263 --> 26:42.434

emerging. They don't really have the wherewithal to buy back shares.

 

26:42.434 --> 26:44.302

They tend to be more dilutive.

 

26:44.302 --> 26:47.872

They don't have that same dynamic but right now you can see the

 

26:47.872 --> 26:51.343

earnings growth estimates in EM and the rest

 

26:51.343 --> 26:54.846

of the world are rising very fast and faster

 

26:54.846 --> 26:58.350

than in the U.S. If you look at the bottom panel, which is

 

26:58.350 --> 27:02.387

the excess return year-over-year,

 

27:02.387 --> 27:05.156

it is now the highest since 2007.

 

27:05.156 --> 27:07.325

It's not even on the chart.

 

27:07.325 --> 27:10.528

You're getting some real good momentum here.

 

27:10.528 --> 27:14.666

What I was mentioning earlier about diversifying,

 

27:14.666 --> 27:18.303

we can go to slide 15, to me, international

 

27:18.303 --> 27:21.873

stocks are really a good barbell against

 

27:21.873 --> 27:23.341

concentration risk in the U.S.

 

27:23.341 --> 27:27.278

We know the concentration risk, top 10 stocks are more than 40%

 

27:27.278 --> 27:31.216

of the market. Half of the S&P is somehow tied

 

27:31.216 --> 27:33.652

to the AI trade.

 

27:33.652 --> 27:37.288

That's great if everything comes to fruition

 

27:37.288 --> 27:39.958

the way we want it to.

 

27:39.958 --> 27:41.826

There's a lot of eggs in that basket in the U.S.

 

27:41.826 --> 27:45.330

so how do you diversify while still being

 

27:45.330 --> 27:48.266

exposed to equity beta?

 

27:48.266 --> 27:50.235

For me the answer is non-U.S.

 

27:50.235 --> 27:52.837

It can be in EAFE, it can be EM, it could be both.

 

27:52.837 --> 27:56.107

If you look at this chart the pink line and the blue line underneath

 

27:56.107 --> 27:59.744

the MSCI EAFE Index, the blue line is

 

27:59.744 --> 28:02.547

the relative performance against the cap-weighted S&P.

 

28:02.547 --> 28:06.251

You can see that it's been hard for non-U.S.

 

28:06.251 --> 28:09.220

markets to keep up because of the Mag Seven.

 

28:09.220 --> 28:12.891

On a equal-weighted basis the pink line,

 

28:12.891 --> 28:15.593

the non-U.S. markets have been very competitive.

 

28:15.593 --> 28:19.397

From my perspective we want to have, obviously,

 

28:19.397 --> 28:22.000

Mag Seven or cap-weighted S&P because that's been a very strong bull

 

28:22.000 --> 28:25.603

market. Until that changes I think you want to

 

28:25.603 --> 28:28.640

harvest those crops while they're abundant.

 

28:28.640 --> 28:30.141

To me ex-U.S.

 

28:30.141 --> 28:33.645

stocks, if that concentration risk ever goes

 

28:33.645 --> 28:37.282

from being an asset to a liability this

 

28:37.282 --> 28:38.750

pink line suggests that non-U.S.

 

28:38.750 --> 28:42.253

stocks would do very, very well, maybe not in

 

28:42.253 --> 28:44.723

absolute terms but certainly in relative terms.

 

28:44.723 --> 28:48.226

To me in a 60/40 that 60,

 

28:48.226 --> 28:50.729

I would put in a barbell of U.S.

 

28:50.729 --> 28:54.132

and non-U.S. Again, it could be EM, EAFE or both.

 

28:54.132 --> 28:57.702

And Canada fits into that side of

 

28:57.702 --> 28:58.536

things?

 

28:58.536 --> 28:58.737

Of course it does, absolutely.

 

28:58.737 --> 29:01.306

That's interesting that we're getting put into that.

 

29:01.306 --> 29:04.409

It's been quite a year here, too.

 

29:04.409 --> 29:08.012

Just on that discussion would you go so far as to say

 

29:08.012 --> 29:11.783

that the U.S. equity markets are acting

 

29:11.783 --> 29:15.320

in a way that is in a different cycle to the rest of the

 

29:15.320 --> 29:19.524

world, different part of a cycle.

 

29:19.524 --> 29:22.393

No, I think the cycle is the same.

 

29:22.393 --> 29:27.465

I mean, the bull market started everywhere in the fall of 2022.

 

29:27.465 --> 29:30.969

It's more of a question of beta and alpha and

 

29:30.969 --> 29:35.173

absolute and relative.

 

29:35.173 --> 29:41.079

The U.S. has been so amplified by the Mag Seven that if

 

29:41.079 --> 29:45.483

you take the equal-weighted index since 2022

 

29:45.483 --> 29:48.019

the performance has been good but it hasn't been 100%.

 

29:48.019 --> 29:51.623

In terms of

 

29:51.623 --> 29:55.460

the direction I think we're all in the same cycle.

 

29:55.460 --> 29:59.030

I mean, we're getting the fiscal push maybe later in rest of

 

29:59.030 --> 30:02.167

the world than in the U.S. but even there the timing is similar, One

 

30:02.167 --> 30:05.837

Big Beautiful Bill versus what Canada is doing and what

 

30:05.837 --> 30:09.574

Germany, for instance, is doing.

 

30:09.574 --> 30:13.044

It just comes down to magnitude and

 

30:13.044 --> 30:16.915

the Mag Seven has greatly magnified the returns

 

30:16.915 --> 30:18.683

in the U.S.

 

30:18.683 --> 30:21.686

Well, we are delighted that you shared your time with us and we'll

 

30:21.686 --> 30:25.089

join up with you from Europe when you're doing some family time next

 

30:25.089 --> 30:27.625

week. We'll look forward to that. Thanks for setting us up for this

 

30:27.625 --> 30:29.160

week. Jurrien Timmer, all the best.

 

30:29.160 --> 30:31.262

Thank you very much. Have a great week, everyone.

 

30:31.262 --> 30:35.200

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