Fidelity warns of market risks as financial conditions tighten

Fidelity Investments' Global Macro Strategist Jurrien Timmer has warned that the ‘investment clock’ has passed midnight, signaling potential market instability similar to the downturns seen in 2018 and 2022.

While corporate earnings remain strong, driven largely by AI investments and large-cap technology growth, tightening financial conditions are beginning to erode upward momentum. Timmer noted that the market trajectory has moved into a tightening zone, where rising interest rates and worsening financial conditions can limit stock price gains even if profits continue to grow.

Key indicators of this shift include rising U.S. Treasury yields and a widening credit spread for high-yield corporate bonds, suggesting a reduction in risk appetite. Although current earnings forecasts for the S&P 500 remain robust, Timmer advised investors against taking excessive risks in the face of these tightening conditions.