Fidelity’s Timmer Warns Rising Rates Can Hurt Stocks Unless Earnings Keep Pace

Fidelity’s Jurrien Timmer says rising charges can erode inventory valuations until earnings progress offsets them. He sees no bubble as we speak, offered revenue margins and credit score spreads maintain.

Yet Fidelity’s chart places the junk bond unfold, the additional yield over Treasuries, at 3.37 proportion factors. That is up from a low of two.67, which exposes fairness and high-yield holders if it retains widening.

How Much Damage Can Rising Rates Do to Stocks?

Timmer posted a chart evaluating valuation fashions with and with out rates of interest. The hole, he mentioned, exhibits what increased charges can do.

“The level of the chart is to spotlight how damaging rising charges could be if they don’t seem to be offset by rising earnings.”

Jurrien Timmer, Director of Global Macro at Fidelity Investments, wrote this in a post on X.

In 1987, 2000 and 2021, the mannequin’s three variables couldn’t account for price-to-earnings (P/E) multiples. Timmer mentioned as we speak differs so long as margins and spreads maintain.

In a separate put up final week, Timmer blamed sticky inflation and financial threat for this 12 months’s rise in yields.

However, the 10-year Treasury yield climbed again above 5% on Oct. 29, reaching 5.05%.

Fidelity’s September word put the ahead P/E close to 19 and anticipated earnings progress close to 20%. Timmer mentioned yields close to 6%, a chance quite than a prediction, might indicate a P/E nearer to 16.

Is the Credit Market Already Sending a Signal?

Fidelity’s chart exhibits the Barclays high-yield bond index peaking in September, a month earlier than the S&P 500 whole return index.

Historically, the chart marks 2014 to 2016 as a stealth bear market, with the unfold rising from 3.29 to eight.20.

However, the ICE BofA unfold index eased to three.18 on Oct. 27 from 3.40 on Oct. 22.

Elsewhere, global corporate bond spreads reached their widest since May 2025 on Oct. 23, a Bloomberg index confirmed. Worries over debt-funded synthetic intelligence (AI) spending fueled the transfer.

If margins and spreads maintain, Timmer’s framework exhibits no bubble. If spreads resume widening as yields climb, fairness valuations and junk bond costs might face stress collectively.

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