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Equity markets aren't priced for a slowdown, says Fidelity's Timmer, even after sharp swings.
Jurrien Timmer, Fidelity's director of global macro, told CNBC that despite recent tariff-induced volatilitywhere the S&P 500 plunged 21.5% then rebounded 23%markets have established boundaries beyond which declines have been rolled back.
He sees 2025 delivering moderate earnings growth offset by value pressures coming mostly from the interest rate side, with the 10-year Treasury (US10Y) yield at 4.5% competing directly with equity yields around 4.55%.
Chicago Fed President Austan Goolsbee warned that tariff hikes could spur a stagflationary impact, hurting output and lifting pricesthe central bank's worst situation.
Timmer noted tariffs act like a tax, paid either by companies via thinner margins or by consumers through higher costs. He added that both earnings and GDP estimates have been marked down, though not significantly worse than typical intra-year adjustments.
Timmer argues the market now faces a ceiling: It's either rates driving down valuations or earnings driving down estimates from tariffs. He highlighted the tug-of-war between bond yieldsUS2Y, and equity benchmarks like The Dow Jones Index, complicating the outlook.
Why It Matters: With fiscal and trade risks capping both valuations and earnings, investors must balance duration and equity exposure.
This article first appeared on GuruFocus.