Third quarter earnings season is underway, and investors are eager to see how it will impact markets and whether it can drive a broad-based rally. Fidelity Investments director of global macro Jurrien Timmer joins Market Overtime to discuss his outlook on the current financial landscape. Timmer addresses the concerns raised by the Magnificent Seven tech stocks’ rally, mainly whether the market could survive if these stocks were to sell off. He points to the recent unwind of the yen carry trade in July, noting that the subsequent sell-off of the Magnificent Seven led to a market decline of about 10% during the summer months. However, he reassures investors, stating, “But it’s nothing like what we saw back in the 90s.” Contrasting the current market with the 1990s, Timmer highlights that today’s market breadth has been “pretty good,” with approximately 80% of S&P 500 stocks in uptrends. The main concern, he observes, is that these stocks still lag behind the Magnificent Seven in performance. “It’s a far less dangerous or concentrated scenario than we saw back then, and that’s why I do think it’s possible that the market can rotate and broaden in a bullish way, and over the last few months, that’s exactly what we’ve seen,” Timmer states. Addressing the potential impact of the upcoming US election on markets, Timmer notes it’s not a primary concern or headwind. He explains, “The history is pretty clear that over the two-year period from the election to the next midterm election, which often will course-correct any lopsided outcome, during that two-year period the election outcome can and does matter.” However, “I’m not saying those things don’t matter at all, but over a full four-year cycle… it makes virtually no difference in the return for the market,” he adds.
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