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

[00:04:14] Pamela Ritchie: Hello, and welcome to Fidelity Connects. I'm Pamela Richie. While the equity bull market remains narrow with tech leaders directionally powering indices higher does the rest of the market make sense today? And where in this market do newer assets or newer asset allocations take their place? Where do gold, Bitcoin and bonds of all stripes rank. ultimately. when we look at the leaderboard? Does their current placement hold for the months and years ahead as we settle into a space of fiscal dominance. Our next guest says that the earnings, buybacks and margin stories are, indeed, underwriting stock strength despite a chaotic macroeconomic picture, though there are signs this secular bull market is a maturing one. Joining us here today to share with you his latest research and thoughts is Fidelity's Director of Global Macro, Jurrien Timmer. Welcome back, and where have you been?

[00:05:10] Jurrien Timmer: I was at Burning Man for my seventh time. It was a great burn, we had a great group of people. We had 90 people cranking out 7,000 meals for the artists and the builders who bring the city to life. We got back a few days ago, I'm rested, decompressed and ready to get back into swing of things.

[00:05:35] Pamela Ritchie: Tell us a little bit about this because every year, I'm sure, is quite unique and the artists come with, obviously, different pieces and so on to display. How was your job any different or the same? 7,000 people to feed, that's per day, is it?

[00:05:51] Jurrien Timmer: Well, actually, we could pull up slide 1. Our job is the same. We're called Feed The Artists, you can see that in the lower right. By the way, that logo doesn't mean we burn the food, it means that the food burns in our bellies creating energy. We were started in 2007, not by me, I took over the camp in 2019. We're there to support the artists who come a week earlier, a week before the burn happens, to build their art, and you can see some of that in the colour picture there. That's just a typical night on the playa. There are always things that happen that are not by design. This year we had some rain but we also had a very large dust storm. You can see me in the left there helping to hold down our shade structure because you get this dust storm that are white out, or even black out, like it turns dark because there's so much dust in the air, and the winds kick up to 60, 70, 80 miles an hour and it blows away camps. It didn't blow away our camp but those could be a little scary moments. We have a great group of people from all over the world and we produce a lot of meals and we make a lot of artists and other people very happy doing so. That's what we do, that's our mission, that's our service, and that's what makes us keep coming back.

[00:07:22] Pamela Ritchie: There's always something that people learn from an experience, was there a thread that you would point to that you'd like to share?

[00:07:31] Jurrien Timmer: I think of it as a ritual of resilience, right, because it's not meant to be easy. It's not supposed to be Coachella where you just show up and listen to your favourite DJ. It's supposed to be hard. There's always a time in the middle of that week where you just want to go home. It's by design. It makes us better and we very carefully curate the group of people that come to camp. Everyone has to work in the kitchen and it creates a very close-knit bond. For me personally, it sort of is a grounding, a grounding reset every year because it's about immediacy and impermanence and growth. I think we all come out of this a little better than how we started, and overcoming whatever obstacles the playa throws at us is part of that journey.

[00:08:29] Pamela Ritchie: Oh, it's absolutely fascinating. Well, we're delighted to hear about this and to also have you share with us some of what you've seen in the market since you've come back. I mean, you had a period of time where you're probably completely off the grid in terms of knowing what's going on in markets. What do you think now that you come back?

[00:08:49] Jurrien Timmer: I do have a Starlink there because I had to check for the weather but I was off the grid market wise. I put in my out of office reply and I never checked the markets once in two weeks, which was refreshing. It also worked out well because nothing really changed so much in the markets while I was there. But then I open up my computer when I come back and I download all my charts, and it is kind of a nice to have a fresh look and to see, okay, is what I thought made sense two weeks ago still the case. You kind of have a look at charts with a fresh pair of eyes, if you will. Basically, the same things that I was thinking in August I'm still thinking in September, and that is that the bull market is alive for equities. It is fueled by re-accelerating earnings, which is a very important part of the story. The bull market's alive.

[00:09:51] The global rotation is still very much alive as well, especially non-U.S. developed stocks, very, very competitive now for a change. For years that was not the case. Bond yields are down quite a bit, they're near 4% because, as you well know, the unemployment data has been soft and that has pivoted the market towards expecting more rate cuts. Of course, the Fed's fate as an independent central bank remains somewhat in question as Jay Powell retires next year and gets replaced by, clearly, someone who is going to look at things more favourably to what's happening in Washington. But that's nothing new either. Gold has broken out of yet another continuation pattern and Bitcoin sits near the all-time high. In many ways the themes that we have been discussing over the last 6 to 12 months remain intact and we go forward.

[00:10:52] Pamela Ritchie: It's fascinating. To an extent when you ask the question do things make sense, they make sense as much as they did a couple of weeks ago. I think you have a leaderboard which is always interesting to take a look at to sort of go back and see which asset classes, in fact, are leading the way.

[00:11:09] Jurrien Timmer: We'll go to slide 2. The leaderboard is, essentially, the same as it has been for the last few months. At the top, gold, European equities, developed equities, EM equities, Japan, those are all at the top, and then you have Bitcoin and you have, of course, large-cap U.S. growth which is the Mag Seven. That, to me, all makes perfect sense. The S&P, obviously, is fueled by the AI boom which is very much real. That's where large-cap growth comes from. The mean reversion away from U.S. towards non-U.S. is very real but it's happening in a way where the pie is getting bigger. This is not a zero sum mean reversing, which is something that I was worried about a year ago, for instance, that if the rest of the world was going to outperform that meant that the Mag Seven had to go down, and if the Mag Seven went down the U.S. market would go down and it would be a zero sum kind of rotation. That has not happened. This is a rotation that's happening while, basically, all asset classes are going up. You look at that chart on the left there, everything is positive. That's pretty remarkable. Obviously, that's a very nice outcome because that means that not only if you're in this trade are you getting the alpha but you're also getting the beta, and that's a very good thing. At the top of the chart, which is the bottom, you have bonds so that is part of the same trade. It's gold versus bonds, it's non-U.S. versus U.S. but in a market where the rising tide is lifting all boats. Pretty much this makes a lot of sense to me and I suspect that it will continue.

[00:13:02] Pamela Ritchie: It's completely fascinating. One of the other things that you talked a lot about was sort of the idea of payouts, of dividends, of being a time where the total return was gonna be very, very important to investors. That said, there's a huge amount of just growth in the market right now. I'm kind of wondering if we can swing back to that. Are they both important to the same degree?

[00:13:28] Jurrien Timmer: If we go to slide 6, the tariff tantrum in April seems like ages ago but the tariff tantrum caused analysts to mark down their earnings forecast for stocks all over the world but especially in the U.S. Then we had the Big Beautiful Bill and we have the administration walking back from the more scary tariff stories, tariffs scenarios. That allowed earnings estimates to actually reaccelerate higher. You have to kind of squint to see this but if you look at the lower right, the blue bars, you can see that earnings growth was at 10, it went to 7 and now it's back at 10. It ended up being a hiccup, and we don't know if that's the way it's going to and up turning out because we haven't really felt the full brunt of the tariff tantrum yet and we don't know to what degree it will be absorbed by consumers paying higher prices or producers or importers getting lower margins.

[00:14:36] At this point, that was sort of a passing storm and the Big Beautiful Bill I think is more than making up for it. Just to illustrate that, if we go to slide 7 and you look at earnings revisions, you can see a massive re-acceleration there in the bottom right there. We went from the earnings revisions index, which is upgrades minus downgrades as a percentage of estimates, going from -12 to +12 just in the last few months. That is a pretty impressive acceleration in earnings momentum. That's very important because you want bull markets to be driven by earnings not by valuations. Now adding to that, and this is very counterintuitive, if we go to the next slide you can see that the operating margin for the S&P is now at a new high of 14%.

[00:15:30] Again, back in April the very obvious conclusion in the market was, okay, we're going to have tariffs. The tariffs are going to go to whatever, 20%. That's going to eat into profit margins of companies and it would like it should. Again, it's always a nuanced thing. The answers are never as sort of simple as we would like. Instead, margins have actually gone up. Again, I think that is in relation to other things. It's the AI boom, it's the Big Beautiful Bill. Maybe the margin story will still come from tariffs down the road because not everything has been felt. As you know, companies were over ordering before the tariffs went into effect so we don't know how long this will last but you get earnings accelerations in terms of estimates, you get higher margins and when you have higher margins, if we go to the next slide, oh, sorry, where's the next slide, to slide 10, that explains the difference between a price-to-sales ratio, which is the orange line, now going to new all-time highs well above the dot-com bubble levels, while the price-to-earnings ratio, which is very high at 25, being below their highs. Obviously, margins is what makes that difference between sales and earnings because you're keeping more of your sales as earnings if your margin is up.

[00:17:03] To your question about buyouts, if we then add another layer of this and we go to slide 9, you can see that share buybacks are also at a new all-time high, 293 billion over the last 12 months. There's a lot of powerful things moving. You have earnings growth re-accelerating, lots of upward revisions, higher margins, bigger share buybacks producing a higher payout, that's a lot of positive momentum. The counterbalance is that we're paying a lot for those earnings because the P/Es are very high. This is kind of the momentum that the markets are feeling. We can talk about non-U.S. markets and how they fare on this as well but this is a pretty good backdrop right now for where this momentum is coming from.

[00:18:00] Pamela Ritchie: Where international markets sit versus these powerful gears that you're talking about here are actually quite similar, aren't they? I mean, there's powerful gears giving to the valuations that we see across the globe as well.

[00:18:18] Jurrien Timmer: I we go to slide 17, one thing I think it's always good to remember, when we look at U.S. versus non-U.S. oftentimes people will focus on the valuation difference. The U.S. is at 24 times earnings, rest of the world is at 15 times. Obviously, you pick the rest of the world because it's cheaper. It's never that simple, of course, because the markets are very efficient and there's a reason why the U.S. is at 24 and the rest of the world's at 15. The markets are not irrational. Then you get into the math of, okay, what is the earnings growth? What share of those earnings are returned to investors as dividends or buybacks? You can think of that as the return on equity to investors. If earnings are growing at 20 but companies are not paying any dividends or they're not buying back any shares then, okay, it matters but it doesn't matter as much as if companies were returning some of those earnings back to shareholders.

[00:19:21] When you look at a discounted cash flow model, typically we look at the growth not in earnings but the growth in the payout. The payout is dividends plus buyback. In this chart the payouts are showed for the U.S., EAFE, so non-U.S. developed, and emerging markets. You can see that in all three cases the payout is growing. At the bottom I show the payout ratio, the percentage of earnings returned to shareholders. What you can say is that EM, of course, EM is generally behind because these are emerging companies, they don't tend to pay as much in a dividend or in a buyout because they tend to be  more dilutive because they're younger companies. That tends to be a lower payout no matter what. That's a 45% payout. If you look at EAFE and the U.S., they're both at 76%. If you look at the growth, the orange line and the grey line at the top, the EAFE payout actually is growing faster than the U.S. payout. This is an important difference that we haven't had in the past.

[00:20:32] We can go to slide 18 to just show that in a little bit more detail. On the left is the U.S., on the right is EAFE. Until about a few years ago, or even a year ago, we had the situation where, okay, the U.S. was very expensive, the rest of the world was not, but the U.S. had the earnings momentum. It had the Mag Seven, it had the AI thing, it had a more growthy configuration, and it had higher payout ratio and that payout was growing faster. So yes, it was more expensive but it was justified. Now the payout is about the same, although as you can see from the chart in the bottom in Europe and Japan more of the payouts coming from dividends and less from buybacks, whereas in the U.S. it's the other way around, but that doesn't really matter too much. The payout in Europe and Japan is growing faster while the valuation remains much, much cheaper. This is a very competitive market now, EAFE versus U.S., and you're getting the difference in valuation. You have both a valuation difference as well as now a catalyst.

[00:21:41] To me, that suggests that the mean reversion that we've had, going back to that leaderboard you see that non-U.S. stocks are at the top. I think this will have some legs and this is a longer opportunity. Not to belabour the point too much but if you then add the currency element to that, or dimension to that, where maybe the U.S. Fed becomes less hawkish and more doveish as it emphasizes employment growth over inflation, that suggests that the dollar could remain in its weakening trend. Then you get currency translation on top of the fundamentals that I just described. To me, this is pretty low-hanging fruit and I would definitely favour developed over EM. We can just go to slide 19 real quick. That shows the same chart but now for emerging markets. You can see that that is not as juicy an opportunity set. The payout is not growing as much and the payout ratio is much lower. To me, this is potentially a lasting trend that should help investors generate not only beta in the market but also alpha.

[00:22:55] Pamela Ritchie: That is absolutely fascinating, and focusing, as you say, on the payout, ultimately, rather than the valuation story, which is something that we used to do all the time but maybe those days are gone for at least a little while. The fly in the ointment is jobs. This was discussed at Jackson Hole which maybe you were, hopefully, not tuning into because you were actually somewhere else. The shift happened then, we then had a slew of jobs data over the course of the last week and a half showing that this is absolutely a shift towards the employment mandate seems to be warranted by the data. That is also helpful for what the administration wants. I guess just to the critics who would say a shift to the employment story helps you cut rates, which is kind of what the Administration is going for. How do you address the critics that say that's sort of useful?

[00:23:52] Jurrien Timmer: If we go to slide 20, I think this is an important shift in the narrative for the Fed. Obviously, we know the political dimension. Jay Powell is stepping off as the chair next year and someone will take his place who is going to be much more, let's say, favourable to the administration's position that rates are too high and should come down. That gets you squarely into the fiscal dominance kind of mode where the Fed becomes less independent. It doesn't mean it loses all of its independence but it becomes less dependent and is going to maybe favour the growth mandate more than the inflation mandate. We know the Fed has this dual mandate, full employment on the one hand and price stability at 2% on the other. We've certainly had moments in the past, especially the '40s, World War II, but also the '60s where the growth mandate was just deemed more important. That gets you into a fiscal dominance mode.

[00:25:08] The reason that's important, if we look at this chart here of the Fed forward curve, which now dips down to below 3%, and we compare that to what I would consider to be a neutral rate, which would be inflation plus a hundred basis points, a hundred base points being R-star. You get into the high threes, not the high twos. The market is expecting the Fed to cut basically down to the inflation rate which would be an accommodative posture. I think the reason for that is twofold. One, if we go to slide 22, is the fact that the jobs report has been soft the last few months. The other one is the political dimension that I just mentioned where the Fed is just gonna be more doveish than it otherwise would be because it wants to lower rates in order to help finance the deficit.

[00:26:07] If we look at the top panel here, it shows two lines, one is the unemployment rate relative to what we consider to be the natural rate of unemployment, or we used to call it NRU. That's at zero which means that the labour market is in balance. The other one, the orange line, is from the JOLTS report and that's the excess labour demand, the number of job openings versus job seekers. That went way up in the aftermath of COVID because the economy reopened and the labour force was not there to accommodate that so you had a very tight labour market. That is also down to zero. On the surface of it the labour market's exactly in balance in terms of the demand for labour and the supply of labour. You look at this chart and the pendulum never stops right at zero, it always ways overshoots in one direction or the other. You look at the past cycles and you could argue, okay, yes, it's at zero  but it's moving down and that means that the next phase of this is going to be a contraction in labour. I think that's what the market is looking at in terms of what the Fed is likely to do and that's why bond yields are down to four.

[00:27:25] But it doesn't really explain very well why earnings estimates are being moved higher and why the stock market is strong. There is a little bit of a disconnect between those two. I think when you look at the Fed lowering, or the Fed expected to lower rates starting in September, which is just around the corner, and then a new chair next year maybe lowering rates more, my sense is that we're going to move into a regime here where ... if in the old regime neutral was inflation plus 100, the new neutral, as I might want to start calling it, would be more the inflation rate as being neutral which would be less than it normally would be. That is not necessarily a terrible thing. The risk, of course, is that it unanchors inflation expectations over the long term so we might have higher inflation as a result of it. For the stock market it might not be so bad. It might actually provide fuel for further rallies. For gold and Bitcoin it's good, it would probably cause the yield curve to bear steepen. Probably not great news for long bonds but good news for short rates and therefore also for banks because banks like a steep yield curve. No matter what happens there's always a menu of things to choose from that will either be helped or hurt by whatever it is we're seeing. I always want to emphasize that we want to look at this as an opportunity set even if it might have some long term implications.

[00:28:58] Pamela Ritchie: That's an absolutely fascinating perspective on it because, as you say, there's lots there to actually invest in that may well benefit from that. A couple of questions coming in, one on gold and international, which I think you've touched on quite a lot. The other is a discussion of what phase, maybe cycle, of the market are we in. Is this the speculative phase, would you say?

[00:29:21] Jurrien Timmer: The latter one is a great question, and we'll go to slide 15. When you have an AI boom and you have a lot of fiscal policy stimulus and, potentially, a fiscal dominance stimulus where you have fiscal expansion accommodated by monetary expansion, I don't want to call it monetary expansion but less of a monetary restraint, you can argue that the animal spirits will take over. Exhibit one for that is this chart which is the Goldman Sachs non-profitable tech. It's not really doing that much right now but you can see 2021 on the left was that easy money bubble when the Fed kind of overstayed its welcome with accommodative policy and we had all the fiscal stimulus from COVID. That turned into a little bit of a bubble and then that bubble burst and these stocks went down 75% from 433 to 93 and now we're at 186. This would be the chart that I would follow to measure whether we are in a liquidity bubble again or whether we end up in one.

[00:30:38] When we think about the secular trend, that actually would be a fitting end to the secular bull. If we go to slide 14, actually go to slide 12, sorry, we've talked about the secular bull market many times, and this one is 16 years old by my count. The past two got to 18 years old. We're kind of in the final innings. You could see, the orange line was the '60s and that ended with a whimper, and the blue line as the dot-com period and that ended up with a bang. How this one will end has always been an area of interest to me. If the AI boom turns into an AI bubble then, obviously, the blue line would become the one that I would watch.

[00:31:32] If we go to slide 13 we just show this a little bit differently where I'm looking at the very long term trend, the 150-year trend, and then in the bottom I look at the deviation from that trend. You can see kind of the '60s was a series of accelerations above its trend line whereas the '90s, the late '90s was just one big sudden bubble. So far we're kind of following the '60s where we're about 50% above the trend line but not 100%. Anyway, this is kind of more for entertainment purposes but it makes me wonder how this thing could end and certainly a blow-off in the coming couple of years is one legitimate scenario that we should be on the lookout for.

[00:32:22] Pamela Ritchie: This is sort of the maturity that you've been discussing within the bull market but, as you say, still probably further to run. I think we'll have to leave it there and catch up with you next time. Jurrien Timmer, a delight to see you as always. Thank you so much for sharing your knowledge with us.

[00:32:37] Jurrien Timmer: Thank you very much.

[00:32:38] Pamela Ritchie: Jurrien Timmer joining us today here on Fidelity Connects. Coming up tomorrow, we check in with portfolio managers Connor Gordon and Chris Maludzinski and what small-cap opportunities they are keeping an eye on. They're gonna be discussing what under-the-radar industries, also themes that they're currently seeing and how the current market environment is influencing their fund positioning. You're gonna hear the word idiosyncratic a few times tomorrow in that discussion.

[00:33:01] On Wednesday we welcome a special guest, the national campaign co-director for Prime Minister Mark Carney, who is also CEO at Catalyze4, this is Andrew Bevan. He'll be joining us to take us behind the scenes and offer his perspective on the policy agenda in the upcoming fall session of Parliament. Big nation-building projects will be discussed and, of course, the latest in Canada-U.S. relations. That's on Wednesday this week.

[00:33:25] On Thursday, Fidelity Director of Quantitative Market Strategy, Denise Chisholm is back to unpack her latest market thesis, taking a look at the sectors and, ultimately, the data points that she thinks really matter, bringing those to you on Thursday. Thanks for joining us here today to kick off your week. Have a good week. I'm Pamela Ritchie.