Fidelity Warns of Cooling Earnings-Led Gains as Investment Clock Hits Midnight Zone
Key Summary
Fidelity's Jurrien Timmer notes the Investment Clock has moved past midnight, signaling tighter financial conditions are cooling earnings-led gains. This setup was last seen in 2018 and 2022, where it led to market declines. With 30.6% third-quarter S&P 500 profit growth expected, investors must consider if earnings can outpace shrinking valuations.
Investment Clock Readings
The Investment Clock, a tool used by Fidelity to plot financial conditions against earnings growth, has moved past midnight, according to Jurrien Timmer. This slight tightening in financial conditions is starting to temper earnings-driven price momentum. The last two cycles where this happened were 2018 and 2022, where it led to market declines.
Historical Context
The 2022 comparison is notable for its shrinking multiples, which led to a 25.4% decline in the S&P 500 between January 3 and October 12 of that year. In contrast, 2018 saw a 19.3% decline from its September 20 peak to its December 24 low.
Market Implications
With 30.6% third-quarter S&P 500 profit growth expected, investors must consider if earnings can outpace shrinking valuations. The test now runs through the October 28 Fed decision and earnings season.
Jurrien Timmer, Fidelity's director of global macro Fidelity London Stock Exchange Group (LSEG) S&P 500