Fidelity’s Jurrien Timmer Warns Rising Rates Can Erode Stock Valuations Unless Earnings Grow

Jurrien Timmer, Director of Global Macro at Fidelity Investments, posted on X that higher interest rates can erode equity valuations unless earnings growth keeps pace. He noted that the junk‑bond spread—the yield premium over Treasuries—has risen to 3.37 percentage points from a low of 2.67, widening the risk for equity and high‑yield holders if it continues. Timmer’s valuation model shows a growing gap between P/E multiples that include current rates versus those that do not, illustrating the potential damage of rising rates. He cites past bubbles in 1987, 2000, and 2021 where the model’s three variables (earnings growth, margin, and credit spread) could not explain the high P/E multiples. With the 10‑year Treasury yield above 5% and a forward P/E near 19, Timmer warns that a 6% yield could push the P/E closer to 16, tightening valuations. The chart also highlights that if credit spreads widen as yields climb, both equity prices and junk bond values could be pressured together.