Key Takeaways
- • Fidelity's Jurrien Timmer says the Investment Clock has moved ‘past midnight’ as slightly tighter financial conditions begin to temper earnings-led price momentum, a setup he links to the 2018 and 2022 market slumps.
- • LSEG data show analysts expect 30.6% third-quarter S&P 500 profit growth, which Timmer suggests could cushion the market better than in 2022, when forward earnings rose 6.2% while the multiple investors paid fell 30%, according to Yardeni Research.
- • The 10-year Treasury yield touched 5.34% on October 1, its highest since early 2002, after the Federal Reserve's September rate hike, its first since 2023.
- • Markets now await the October 28 Fed decision and earnings season; CME FedWatch put October hike odds near 18% on October 8, while Goldman Sachs expects the next hike in December.
Summary
Fidelity's Jurrien Timmer, the firm's director of global macro, posted on X that the Investment Clock has moved ‘past midnight,’ using chart data through October 11. He said a slight tightening in financial conditions is starting to temper earnings-driven price momentum. The clock scores financial conditions against their 52-week history, where positive readings indicate tighter-than-normal conditions. The market trail since October 2022 now ends just right of zero. Timmer flagged 2018 and 2022 as the last two cycles with this setup.
The rate backdrop has tightened alongside the shift. The 10-year yield touched 5.34% on October 1, its highest since early 2002. The Federal Reserve raised rates in September, its first hike since 2023. CME FedWatch put October hike odds near 18% on October 8, and Goldman Sachs now expects the next hike in December.
Timmer drew a comparison to 2022 in a September Fidelity note. Per Yardeni Research, forward earnings gained 6.2% that year while the multiple investors paid for them fell 30%, and the S&P 500 slid 25.4% between January 3 and October 12, with shrinking multiples driving the decline. In 2018, the index fell 19.3% from its September 20 peak to its December 24 low, according to an investor letter. Timmer argues that trailing earnings growth near 30% could offer a bigger buffer this time.
LSEG data show analysts expect 30.6% third-quarter S&P 500 profit growth. The index closed at a record above 7,800 on October 6, according to Reuters. The next test runs through the October 28 Fed decision and earnings season. With 10-year yields above 5% in early October, profit growth may need to outpace any valuation contraction for equities to hold their gains.
The rate backdrop has tightened alongside the shift. The 10-year yield touched 5.34% on October 1, its highest since early 2002. The Federal Reserve raised rates in September, its first hike since 2023. CME FedWatch put October hike odds near 18% on October 8, and Goldman Sachs now expects the next hike in December.
Timmer drew a comparison to 2022 in a September Fidelity note. Per Yardeni Research, forward earnings gained 6.2% that year while the multiple investors paid for them fell 30%, and the S&P 500 slid 25.4% between January 3 and October 12, with shrinking multiples driving the decline. In 2018, the index fell 19.3% from its September 20 peak to its December 24 low, according to an investor letter. Timmer argues that trailing earnings growth near 30% could offer a bigger buffer this time.
LSEG data show analysts expect 30.6% third-quarter S&P 500 profit growth. The index closed at a record above 7,800 on October 6, according to Reuters. The next test runs through the October 28 Fed decision and earnings season. With 10-year yields above 5% in early October, profit growth may need to outpace any valuation contraction for equities to hold their gains.
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