Key Takeaways
- As stocks chase new highs, Fidelity’s Jurrien Timmer isn’t worried about an overly frothy market.
- Market fundamentals still look sound, Timmer says, even though tech valuations are elevated.
- Timmer says investors can lean into diversified global stock portfolios over trying to time the tech rally.
As the bull market enters its fourth year and tech stocks continue to soar, some market watchers are sounding alarm bells about overly exuberant investor behavior and the possibility of a bubble in artificial intelligence stocks.
But Jurrien Timmer, director of global macro at Fidelity Investments, says the landscape for equities still looks sound. “Some froth is definitely coming into the market, but … we’re not in a danger zone,” he says.
The Morningstar US Market Index has climbed more than 15% so far this year and almost 95% over the past three years as of Wednesday. The Morningstar US Technology Index is up 22% since January and 175% since the start of the last bull market.
Given that powerful performance, it’s no wonder that sentiment surveys look bullish and stocks are still climbing despite the lingering risks that could derail them, like stretched valuations, sticky inflation, and tariffs. Right now, investor sentiment “is not at levels that would give me pause,” Timmer says.
Reasons for Optimism
Underpinning that optimism are market fundamentals that still look sound, according to Timmer. The third-quarter earnings season is underway, and earnings growth for the S&P 500 Index is sitting at a healthy 8% so far, according to data from FactSet. And at the same time, earnings estimates are rising “at a pretty good clip,” Timmer says.
The market could also benefit from a Federal Reserve that has begun a rate-cutting cycle. “A friendly Fed … always helps grease the wheels,” Timmer says. Add in a “very quiet” bond market where yields have fallen off their 5% highs and sustained demand for artificial intelligence, and there are plenty of reasons for stocks to keep climbing. “My sense is that there’s still some momentum left [in the market],” he says.
The red flag would be if investor sentiment remains elevated while earnings or other measures of profitability deteriorate. “If the froth happens despite worsening fundamentals, then I think you have to be more careful,” Timmer says.
An Unusual Bull Run
In a typical bull cycle, the market rally tends to start broadly, then narrow as the recovery from a downturn loses steam until only the biggest, strongest players are left. As time goes on, returns tend to soften and earnings momentum often wanes. The Fed typically raises rates.
But “this cycle has been the complete opposite of that,” Timmer says. The bull market started narrow and eventually broadened to include small caps, which are up 9.9% for the year, as well as international stocks. The Fed is cutting rather than raising rates, and earnings estimates are accelerating rather than falling.
Overall, “everything is running at a smooth clip.” Timmer emphasizes, however, that investors are paying for that performance. Price/earnings ratios are elevated thanks to the recent boom in tech stocks. The S&P 500 Index now trades with a P/E ratio of around 28.8, according to data from FactSet, compared with its five-year average of 26. “The market is not cheap,” Timmer says, “but it has the chops to back it up.”
Echoes of the 1990s
For now, Timmer says that’s even true for the giants of the Magnificent Seven, which are trading with price/earnings ratios around 35, well above the rest of the market. Timmer says those elevated valuation make sense for “gigantic secular growth stocks caught up in the momentum of a massive AI story.”
Timmer would be more worried about stock prices climbing to 100 times earnings or even higher. “That’s when you get into silly season,” he says. “But at this point, it still seems relatively anchored.”
To be sure, it’s still worth taking note of the similarities between today’s market and the tech bubble of the late 1990s, even if the alarm bells aren’t yet ringing. The Fed cut interest rates into a bull market in the ‘90s, turbocharging returns. “We know what happened next … we had the top [of the market] in 2000,” and the subsequent crash, Timmer recounts.
Today’s Fed is also cutting rates while stocks soar. While it’s impossible to predict how this cycle will end, “we can learn from historical cycles, even though history doesn’t necessarily rhyme,” Timmer says.
Opportunities for Investors
Overall, Timmer says investors shouldn’t lose sleep over whether the tech rally will lose momentum or inflate to bubble territory. There are plenty of attractively priced opportunities outside of the Magnificent Seven mega-cap tech stocks.
“We’re fortunate that the bull market has broadened overseas,” he explains. “The pond just got a lot bigger.” He thinks investors can build a broad, diversified portfolio of global stocks that are competitive with US stocks when it comes to fundamentals, valuations, and earnings growth.
European, Canadian, and Japanese markets are all outperforming the United States this year, for instance, as are Chinese stocks. The Morningstar China Index has gained 37% so far in 2025.
For many investors, Timmer says a diversified global portfolio of stocks with attractive valuations and earnings prospects is a better strategy than attempting to predict how much more room the tech rally has to run. “I’d rather focus on that, because otherwise we get into the market-timing business,” he explains. “That’s always a really tough thing to do.”
