Fidelity's Timmer: Higher Rates Could Hurt Stocks Without Matching Earnings Growth

Fidelity’s Jurrien Timmer argues that higher rates can erode stock valuations if earnings growth does not compensate. As long as profit margins and credit spreads stay intact, he does not see a bubble today.

Yet the junk bond spread — the premium that high-yield debt pays over Treasuries — stands at 3.37 percentage points in Fidelity’s chart. That is up from a low of 2.67, leaving equity and high-yield investors vulnerable should the widening continue.

What Risk Do Higher Rates Pose for Stocks?

Timmer shared a chart that compares valuation models based on whether interest rates are included. The gap between them, he said, demonstrates what higher rates can do.

“The point of the chart is to highlight how damaging rising rates can be if they are not offset by growing earnings.”

“You can also clearly spot previous bubbles, including 1987, 2000, and 2021, when none of the P/E multiple at the time could be explained by these three variables. We are not…”

— Jurrien Timmer (@TimmerFidelity), October 30, 2026

Jurrien Timmer, Director of Global Macro at Fidelity Investments, made the comments in a post on X.

In 1987, 2000, and 2021, price-to-earnings (P/E) multiples could not be accounted for by the model’s three variables. Timmer said the present moment differs as long as margins and spreads remain intact.

In a separate post last week, Timmer tied the rise in yields this year to sticky inflation and fiscal risk.

On Oct. 29, though, the 10-year Treasury yield moved back above 5%, touching 5.05%.

A Fidelity note from September put the forward P/E near 19 and expected earnings growth near 20%. Timmer said yields around 6%, a possibility rather than a prediction, could suggest a P/E closer to 16.

Is the Credit Market Already Flashing Warning Signs?

According to Fidelity’s chart, the Barclays high-yield bond index reached its peak in September, one month before the S&P 500 total return index.

On a historical basis, the chart identifies 2014 to 2016 as a stealth bear market, with the spread climbing from 3.29 to 8.20.

The ICE BofA spread index, however, retreated to 3.18 on Oct. 27 after sitting at 3.40 on Oct. 22.

Elsewhere, global corporate bond spreads reached their widest since May 2025 on Oct. 23, according to a Bloomberg index. Concerns about debt-funded artificial intelligence (AI) spending were behind the widening.

If margins and spreads hold, Timmer’s framework points to no bubble. If spreads resume widening while yields rise, equity valuations and junk bond prices could face pressure at the same time.