Fidelity’s Jurrien Timmer says rising rates can erode stock valuations unless earnings growth offsets them. He sees no bubble today, provided profit margins and credit spreads hold.

Yet Fidelity’s chart puts the junk bond spread, the extra yield over Treasuries, at 3.37 percentage points. That is up from a low of 2.67, which exposes equity and high-yield holders if it keeps widening.

How Much Damage Can Rising Rates Do to Stocks?

Timmer posted a chart comparing valuation models with and without interest rates. The gap, he said, shows 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.”

Note the divergence in the chart below between the models that include rates and the one that doesn’t. 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… pic.twitter.com/wMQASk0csJ

— Jurrien Timmer (@TimmerFidelity) October 30, 2026

Jurrien Timmer, Director of Global Macro at Fidelity Investments, wrote this in a post on X.

In 1987, 2000 and 2021, the model’s three variables could not account for price-to-earnings (P/E) multiples. Timmer said today differs as long as margins and spreads hold.

In a separate post last week, Timmer blamed sticky inflation and fiscal risk for this year’s rise in yields.

However, the 10-year Treasury yield climbed back above 5% on Oct. 29, reaching 5.05%.

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

Is the Credit Market Already Sending a Signal?

Fidelity’s chart shows the Barclays high-yield bond index peaking in September, a month before the S&P 500 total return index.

Historically, the chart marks 2014 to 2016 as a stealth bear market, with the spread rising from 3.29 to 8.20.

However, the ICE BofA spread index eased to 3.18 on Oct. 27 from 3.40 on Oct. 22.

Elsewhere, global corporate bond spreads reached their widest since May 2025 on Oct. 23, a Bloomberg index showed. Worries over debt-funded artificial intelligence (AI) spending fueled the move.

If margins and spreads hold, Timmer’s framework shows no bubble. If spreads resume widening as yields climb, equity valuations and junk bond prices could face pressure together.

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