DialoguesFidelity : La perspective macroéconomique de Jurrien - 21 juillet 2025

[00:02:17] Pamela Ritchie: Hello, and welcome to Fidelity Connects. I'm Pamela Richie. The market climb continues with earnings season now in full swing. Companies reporting thus far have been able to meet, beat and release some more guidance after a semi-paralysis in communication due to the tariff unknowns. While tariffs are still unknowns the one big, beautiful bill has passed and a larger pond for investors to fish in has opened up across the globe. Concerns about the Fed and the bond market are not going away as this wall of worry continues to be tackled. Joining us here to bring context to what this moment in the markets could mean for you and for your clients is Fidelity Director of Global Macro, Jurrien Timmer. Hello Jurrien, how are you? Happy Monday.

[00:03:05] Jurrien Timmer: Good morning. Good morning

[00:03:06] Pamela Ritchie: Great to have you with us. We'll invite everyone to send their questions in over the next half hour or so. A moment in the market, it is kind of fascinating, there's a little bit of complacency. Things, as we say, climb this wall of worry. What are you seeing in this moment?

[00:03:22] Jurrien Timmer: If you look at what the markets are doing, the stock market is making modest new highs. The Mag Seven continues to power along. Global markets are very much participating in this, which is great to see because it really shows, like you said, a bigger pond that we can all fish in is, obviously, better than the last 10 years where it was a very binary choice. If you were in this space that worked and great but if you were not you were really left behind. That's no longer really the case. We're starting to get some animal spirits back.

[00:03:57] If we go to slide 7, the non-profitable tech stocks, these were the darlings of the 2021 liquidity bubble. Remember when we had COVID and we had all that fiscal helicopter money that the Fed was, essentially, monetizing and then it stayed too accommodative for too long, that created a liquidity bubble and we had the whole meme stock frenzy. That, of course, unravelled as they always do when rates go up. For the last few years those stocks have just been sitting at the bottom down 50%, but they're starting to stir a little bit. Whether that's complacency or not I'll leave to everyone to conclude for themselves. When you look at the two elephants in the room they're still there. One is tariffs and one is the fiscal side with bond yields possibly pushing up towards 4 1/2 and 5 again in the future. Those two risks have not gone away. I think the market is just concluding that, yeah, whatever, we'll believe it when we see it in terms of the tariff stuff because we've had so many back and forths on threats and then, supposedly, deals and this and that. I think the market has kind of gone from pricing a left tail to back to pricing a right tail driven by the big, beautiful bill.

[00:05:24] In the meantime, the earnings story, earnings got marked down back in April. If we go to slide four, they are getting unmarked now because the worst case scenario for tariffs has not yet materialized, maybe it still will. Earnings growth estimates got marked down by about 400, 500 basis points back in April. Now we have the big, beautiful bill. We have tailwinds from a lower dollar which tends to boost earnings for U.S. large-cap companies. What we're seeing is that earnings season, which is now a week underway, is already seeing the customary bounce. The growth rate for Q2 earnings coming into earnings season was 2.5%. We're now at 3.8 or so. That is very likely to continue in the next few weeks. The earnings story is good.

[00:06:16] If we go to slide 3, the valuation story, we're back to valuations amplifying earnings rather than offsetting them. We've talked about this in the past. 2023 and 2024, we saw a big lift from valuations. Earlier this year we saw the opposite. That was always my sense, this will be a more two-sided year where earnings would grow but evaluations would compress. Right now, and it's just a snapshot in time right now, we have valuations up about 8% year-over-year, earnings about ten or so or eight, and then dividends is 1. So you get a pretty good performance profile but, again, we're only halfway through the year and those elephants have not left the room yet.

[00:07:08] Pamela Ritchie: Right. But the earnings picture has been ... there was a lot of concern about Q2 because that was when all the announcements came. There was a little bit of a paralysis by companies because they just didn't know what they were making decisions on so they sort of put them all to the side. Are you surprised thus far that we're not seeing more evidence of that or, actually, have certain data sets leading up to the earnings season kind of allowed us to think that, yeah, earnings are okay. We haven't seen anything disastrous.

[00:07:39] Jurrien Timmer: It's a great question and, actually, we can pull up slide 5. It's hard to know exactly where the different pieces will land right? If tariffs are an import tax, that's, basically, literally what they are, we don't know who is paying the tax yet. Is it the consumer, is it the importing company through lower margins or is it the exporting company because of a threat of substitutions, or what have you. One thing we do know, if you look at this chart, that grey line at the top is the operating margin for the U.S. stock market, and it continues to make new highs. Again, it's early, this only just happened the last few months so we're not going to necessarily see this yet but so far the margin story is holding up, and margins definitely are a driver for valuations and, of course, for earnings. Again, how do you offset the pressure from tariffs with the boost from the big, beautiful bill?

[00:08:41] We just really don't know yet. There isn't a lot of evidence that it's all being paid for by consumers. They're not as flush with cash this time around. The last cycle, we don't have all those COVID era transfer payments going on that we did the last time there was a fiscal impulse. It could all just be kind of offset by each other but, generally, the thinking is it should add a little bit to inflation and take a little bit away from margins and you get into a very mini sort of stagflationary type of mode. So far there is really no conclusive evidence of any major direction with the tariffs. That may just be because the tariffs so far are not that onerous. They could get worse or not. Also, you had companies  front-running orders before the tariffs would go into effect so who knows how much of the data is even reliable at this point.

[00:09:43] Actually, just one more point on the inflation component, I'm not an inflation expert or an economist but, apparently, with all the federal layoffs during the DOGE days, a large chunk of how the CPI is measured is just sort of fill in the blanks stuff because they don't have enough people or systems to actually track prices anymore. That's kind of another little dimension of that.

[00:10:16] Pamela Ritchie: That's really interesting. That also needs to land with, I guess, some clarity one way or the other. This is also something you won't have an answer to but I'm curious, I think probably Canadians are curious, watching the tariff negotiations with the EU right now, which are getting heated which is part of the process, just your thoughts, generally. It is getting a bit heated there. Maybe they'll make it to a good deal or a bad deal, we don't know, but I'm just wondering if you have any sort of impressions on some of the negotiations on tariffs thus far.

[00:10:50] Jurrien Timmer: The Europe story is interesting because the former prime minister of the Netherlands, Mark Rutte, is now the secretary-general of NATO, and he was at the White House. Generally, Dutch people have been a big fan of his. He's handling that whole situation pretty well and there's some good cooperation now with NATO. Now all of a sudden Putin is on the hot seat so I guess it's a reminder that with this administration you just never know. What's hot today is cold tomorrow. What's cold today is hot tomorrow. I think the market has resigned itself that some deal will be made. If it's not the markets will, essentially, punish the non-dealmakers to the point where they'll have to make a deal. That was one of the lessons from April, the markets do still have a voice. We were worried in March and early April that they were going to plow ahead with this stuff no matter what the markets did but the markets do always win and do always have the last word. I think whether that's complacent or not I think that's generally the vibe in the markets because the markets are very quiet even though the headlines are not. Maybe that's complacency, maybe everyone's being at the beach in July but it does tell you that ... it's like machine learning, right, fool me once, that sort of thing. The markets are now, okay, we'll believe it when we see it.

[00:12:29] Pamela Ritchie: Fair enough. Speaking of the beach and hot under the collar on negotiations, let's go to your heat map, actually. It just takes a look at the asset classes that have been on fire, some of them, actually.

[00:12:41] Jurrien Timmer: Slide 15. It's very interesting. This is the periodic table showing annual returns on a rolling three-month basis. On the top are Bitcoin and the Mag Seven. On the surface, you would think, well, what do those two have in common, but they're both favoured destinations of people expressing risk appetites. The Mag Seven are the powerhouse that they are. Bitcoin, when risk is on and the fundamental narrative is working, which in this case is global liquidity growth, you combine that with a rising market, Bitcoin does very well. We know they're at 120 or so. It made new highs last week again. We had the Genius Act which certainly fuels the fires of the crypto world even more. We can talk about the Genius act in a moment. Crypto is now a $4 trillion asset class when you include the stablecoins, so pretty impressive. Those are the two at top and, of course, S&P below that.

[00:13:55] At the bottom it's the same victims we've had all year. It's long Treasuries and the dollar. That kind of tells you everything you need to know about where the priorities are, that Treasuries and the dollar are no longer the safe haven asset. Certainly, when we think about not only the next six months but the next five years, and we think about all the attacks on the Fed's independence and the need to finance all this debt and the risk that if the Fed were to become sort of a puppet of the administration and it lowered rates when it really wasn't justified, you would see the yield curve bear steepen and that would put pressure on long rates and the refinancing there. I think that all plays into both the dollar and Treasuries as the weakest links in the chain here. If we want to speculate even further we can think about ... Powell, of course, is out next year, whether he gets fired tomorrow or stays out his term, someone will come in who is more friendly to the administration. We already see this circus unfold, that people on the Fed are very blatantly and, obviously, parading around, looking for the job. If you get to a point where the Fed does lower rates beyond what is justified it would almost immediately then have to go back into yield curve control to keep the long end down because if they don't do that then the curve will bear steepen and everyone loses still at that point.

[00:15:41] Then you get into kind of a Japanese style financial repression era. What does that do to the dollar? These are all kind of the things that are lurking in the bottom of that chart. You can argue that if that happens, if you have real financial repression and devaluation of the debt via low real rates and a weakening dollar then places like Bitcoin, and even non-profitable tech stocks, could go to the moon because then you get this very impulsive move up, at least in local terms, maybe not in U.S. dollar terms. I think that this heat map is kind of already hinting at where the cookie is going to crumble.

[00:16:25] Pamela Ritchie: To an extent that's showing where it is priced in, maybe not fully priced in but starting to get priced in. There's a question, we were going to talk about margins and this question, this goes to sort of the earnings story and the margin story within, and they've been very good. It's specific about metals. I'll just put it to you. Do you think that tariffs on copper, which was the massive story two weeks ago, aluminum and steel will have a meaningful impact on margins, earnings and overall economic growth in the U.S. This is the question of where we find it in earnings.

[00:17:01] Jurrien Timmer: If you look at the sector performers, I don't have the chart this week, the leaders are, of course, tech, communication services, financials, industrials, and the losers are energy and kind of materials are in the middle so that would be kind of the copper, steel play. Tariffs on steel I can kind of see because I believe we produce steel in the U.S. I don't know that anyone produces copper. You can't just take a copper mine out of some other part of the world and plop it in here. I don't know how logical that is and, of course, a lot of logic doesn't always enter the equation when it comes to these things. That could affect margins.

[00:17:48] I will just say that, where's my chart, slide 13, when you look at emerging markets there's some really good action there. If you look at the bottom panel, the orange is a detrended chart of the commodity markets. This is the CRB Raw Industrials. You can see that that tends to coincide with cycles for emerging markets, these are both z-scores. It does look like a new kind of commodity bull market is underway which helps emerging market stocks. If we go to slide 14, just looking at the Bloomberg Spot Commodity Index in the top and this is the Goldman Sachs Equity basket for commodity producers in the bottom, it's not a bad looking chart. It's not going vertical by any chance but the stocks in the commodity space are holding up pretty well as the commodity space itself seems to be building some sort of rounding bottom. I'm positive on the space and, again, the tariff stuff, I think the market has concluded that you just never know and, ultimately, the markets will speak and decide these things.

[00:19:09] Pamela Ritchie: Fantastic. If we go further into the earnings picture, which is sort of earnings for sure, unprofitable tech, you were speaking about that before, I wonder if this is the moment to sort of bring in the Genius Act and talk a little bit more about what's been codified, eventually how investors can take a look at this. I think just the whole issue of stablecoins, we heard a lot about it last week. How should investors look to watch for this either in companies or in separate new entities? What do you think?

[00:19:42] Jurrien Timmer: It's a fascinating story. Circle, which is the second largest stablecoin after Tether, and Tether is not a U.S. company so it kind of does its own thing, but Circle has been trying to do all of this by the book, fully reserved, full transparency. It issued an IPO recently that was vastly, vastly oversubscribed so it tells you that there's real appetite for this industry. It's interesting, we don't really know to what degree this will disrupt the legacy financial industry, as we call it. If you're sending a payment overseas via SWIFT, it's a mess. It's expensive, it takes like three days, four different banks touch that money before it goes to the recipient. The idea is that stablecoins will allow for that to happen seamlessly and you'll always know where your money is until it lands in the recipient's pocket. This money doesn't come out of thin air. This is not like the money supply's all of a sudden going to grow 20% because stablecoins are created.

[00:20:56] If someone decides to hold money as a stablecoin they have decided not to hold it in a traditional form which would be, presumably, a bank deposit or something like that. It could disrupt the banks in that sense, it will make the banks less profitable with payments, and they might lose market share on deposits. One of the things with the stablecoins is that it can't pay interest, and that actually has its roots in history from a very long time ago. We used to have this thing called Regulation Q. Back in the 1920s banks were competing with each other on deposit rates. Each bank would pay a higher deposit, sorry if I'm digressing here, and that would then, some banks would make unnecessarily risky loans or investments to be able to pay for those deposits. That created moral hazards so the government said, okay, regulation Q, you can't compete with interest rates. That's when banks started to give out toasters and TVs when you opened a large account.

[00:22:06] Pamela Ritchie: Now they give out iPads.

[00:22:09] Jurrien Timmer: This is kind of rooted in that history where, okay, stablecoins are not going to be able to compete on rates because otherwise it creates unfair advantage because banks are reserved and stablecoins, I guess, are reserved as well. They're not gonna play a function, they're not going to compete with a money market fund that's paying 4 1/2% and a stablecoin which pays nothing. The use case is for people to have utility over their money. It might normally be in a bank but banks generally pay almost nothing on their deposits anyway. There it becomes a question of access, of fungibility, and the ease of moving money around. The banks can compete with that because they can tokenize their deposits. Then you get into, okay, what does that do to bank reserves, what does that do to the liquidity environment? We don't really know where that is going to all fall but it's certainly a disruptive  change and I think one that's generally a good thing.

[00:23:18] Ethereum is sort of the OG on stablecoins. Half the stablecoins are somehow denominated in, not denominated, but are related to Ethereum. Ethereum has a very large market share and that's why Ethereum, of course, has been skyrocketing the last few months. That's kind of this new emerging ecosystem but there's a lot of things we don't know yet. For the dollar, it's actually a good thing because 99% of stablecoins are backed by U.S. dollars. The other angle is that the hope, I think, of the folks in the White House is that if stablecoins become this multi-trillion-dollar asset and they have to be backed by Treasury bills then that finds a home for Treasury buyers that we may not have right now. I think there's a little bit of an ulterior motive in that sense as well.

[00:24:17] Pamela Ritchie: That is so fascinating. What would you say of the analogy at this stage? You can see how stablecoins are going to evolve and be slightly a lot more complex, ultimately. But if you have X company issuing X number of stablecoins how far off is that from imagining it as a gift card?

[00:24:40] Jurrien Timmer: Not far at all. Fidelity could issue a token or its own stablecoin. If a new generation are just operating and managing their cash flows in this new virtual blockchain, on-chain world, and the banks are kind of, okay, that's for your parents, the young people are too hip for that, then you have these two parallel systems. I don't think one will ever replace the other because if you need a loan you're still going to go to a bank, or if you get a mortgage. It can all get tokenized, even securities, ETFs, mutual funds, they can all be tokenized, but it doesn't really change the fact that, ultimately, the stablecoins are an off and on ramp, if you will, to do other things. If you use stablecoins to buy Bitcoin and you make a ton of money in Bitcoin and you want to buy a house, well, you still have to convert it back into the real world money. Maybe you could buy a house with the stablecoin at some point because everything gets tokenized. Maybe your house gets tokenized. I think that's where it goes. It doesn't replace the dollar. It doesn't replace the banks. The banks will find a way to compete and to integrate with that. I don't think it's disruptive in that sense but, certainly, if you're sending money to your second cousin in, whatever, Romania, having stablecoins is going to be a lot cheaper to send than physical dollars through SWIFT.

[00:26:19] Pamela Ritchie: So interesting. All kinds of questions flooding in here about Bitcoin. I'll put just one more to you here. Do you have a sense of whether flows going into Bitcoin right now are coming from cash on the sidelines, other asset classes like equities, do you have the sense of the flows?

[00:26:36] Jurrien Timmer: Slide 18, this is all ETFs right now. The big one is BlackRock here in the U.S., Fidelity is the second biggest one. The yellow bars is futures open interest and that was ramping up in the anticipation of the ETFs getting launched a year and a half ago. Once they got launched the movement went from the futures market to the cash market, which makes sense. It's been massive flows into Bitcoin ETFs. I think that has to do with the next chart, 19. Like I said earlier is that gold, you always know what you're getting. It's a store of value, it's a hard money asset and it's going to do what it does based on that single variable. Bitcoin is trying to do the same but it's also affected by risk appetites in general. You can see in the bottom there a z-score of the global money supply, it's up 8, 9%, and the z-score of the stock market, which is up by similar amounts. Bitcoin is having it both ways right now because risk appetites are strong and liquidity growth is strong. Bitcoin really thrives on that.

[00:28:00] Where the money is coming from, it's a good question. It may be coming out of bonds or T-bills or bank deposits. I think this is just money that people have to play with. I don't think it's cannibalizing the stock market or anything like that because we're seeing similar flows into non-profitable tech, for instance. I think it's just people having cash somewhere and saying, hey, I want to play this game too. That's very Bitcoin-like. If we go to slide 17 you can just see this  four-year cycle for Bitcoin has been very, very accurate. I created this chart two years ago and it's still following it. I don't know if we're getting into the later innings of this particular four-year cycle, we might be, but it's doing what it's always done, always has, which is up and to the right. It's just a question of how many tailwinds or headwinds there are in terms of easy money, tight money, monetary policy, etc.

[00:29:05] Pamela Ritchie: As we sort of close out just a little bit of a discussion on the risks. You mentioned the two biggest ones. Again, there's preparations, there's pricing in of certain things within the markets, for sure, but as we come to August which sometimes can be a bumpy ride, or just like a low liquidity time in markets, what do you think people should be taking a look for?

[00:29:29] Jurrien Timmer: What I look for the most is the 10-year yield. The dollar, I think everyone has concluded the dollar probably has lost some of its supremacy here. The 10 year yield, which actually now is at 4.35 but a few days ago it was knocking on 4.5 again. The interplay between attacks on the Fed, who goes in there, what do they do, what does that do to the shape of the yield curve, and then what happens next, I think the 10-year yield is probably the most important indicator as far as I'm concerned. As I always say, nothing good happens above 4.5%, and so far we've stayed below it. If we go to slide 9 real quick, I know we're out of time,  I would call that a coiled spring. It's just been in this super tight range of 4 to 4 1/2, let's say, and that coil is getting tighter and tighter and the term premium, meanwhile, is rising and it's now at about 80 something basis points. To me this is the most important thing because if this goes the wrong way pressure will build on the Fed. If you get a Fed puppet in there next year who not only cuts rates too much but also does yield curve control that may be great for risk markets, Bitcoin would just go to the moon if that happened, but it's not good for the largest economy in the world and the central bank of the world to be doing things that undermines its own independence. That's something I think about as kind of an existential risk.

[00:31:09] Pamela Ritchie: It's amazing to see where these markets have gone and the moment that we're in and thank you so much for setting us up for this week, as always. Jurrien Timmer, have a great week.

[00:31:19] Jurrien Timmer: Thank you.

[00:31:20] Pamela Ritchie: Jurrien Timmer joining us today from Boston. Coming up on Fidelity Connects tomorrow, Director of Research at Fidelity Digital Assets, this is Chris Kuiper. He's going to be joining us for a timely discussion on the digital asset landscape including Bitcoin's institutional and government adoption, as well as the digital currencies recently hitting all-time highs. We'll dig even further into that tomorrow with Chris.

[00:31:42] On Wednesday, Fidelity's Director of ETFs and Alternative Strategy, Étienne Joncas-Bouchard, he'll be here to discuss trends shaping the ETF space, how investors can benefit from Fidelity's All-in-One ETFs in this market environment. He'll take a look at how the ETFs, the All-in-Ones, have done over the course of sort of the phases of this market since the beginning of the year. We'll dig deep into that. Both tomorrow, Tuesday, and Wednesday's shows will be available with French, live French audio interpretations, so do join us in either official language.

[00:32:12] On Thursday, Fidelity Director of Quantitative Market Strategy, Denise Chisholm, will also share her latest market thesis and what sectors she's keeping an eye on. Thanks for joining us here today. We'll see you soon. Have a good week. I'm Pamela Ritchie.