Navigating market volatility: Insights from Jurrien Timmer
In a recent episode of Fidelity Connects, Jurrien Timmer, Director of Global Macro at Fidelity, shares his insights on market volatility, tariff discussions and potential recession fears dominating headlines.
Here are some of the key points from his commentary.
Understanding market drawdowns
Timmer starts by examining the recent drawdowns in major indices. As of March 7 2025: the S&P 500 was down 8% from its high, the Magnificent 7 (Mega Caps) were down 19%, and the Russell 2000 (Small Caps) were down 18%. Interestingly, the equal-weighted S&P 500 was down 7%, highlighting a barbell effect where both large and small caps experienced similar declines.
Timmer emphasizes the importance of understanding the frequency of drawdowns. A drawdown of 5% occurs approximately half the time, while a 10% drawdown happens about 37% of the time. This volatility is the price investors pay for long-term returns. The key is to remain disciplined and avoid emotional reactions during market downturns.
Global market dynamics
Timmer highlights the significant divergence between US and non-US markets. He commends his colleagues for their belief in the mean reversion trade between the US and global markets, which is now paying dividends. The relative performance of the Magnificent 7 and the All-Country World Index excluding-US, shows a stunning reversal, indicating a shift in investor sentiment.
European market resurgence
Europe has emerged as a notable winner in recent weeks. Timmer attributes this to a decisive election and a realization in Europe that they need to defend themselves without relying on the US. Germany, in particular, is implementing major fiscal stimulus, including increased defense spending and infrastructure investments. This urgency to grow has driven the MSCI Europe index higher.
Timmer points out that Europe was trading at a significant valuation discount compared to the US, amplifying the impact of the catalyst. He suggests that if Europe can overcome challenges related to funding and fiscal unity, it could unleash further growth and animal spirits.
Emerging markets and China
Emerging markets have been bifurcated, with India performing well while China lagged due to various policy decisions and the property bubble overhang. However, recent policy changes in China, including Xi Jinping's meeting with Jack Ma, indicate a call to action. China is now trading at a much lower multiple, presenting a potential opportunity for investors.
US recession concerns
The possibility of a US recession is a topic of concern. Timmer notes that while the economy was already showing signs of slowing, the impact of tariffs, layoffs related to the DOGE phenomenon, and a potential government shutdown could exacerbate the situation. He emphasizes the need to monitor jobless claims and unemployment reports for signs of economic distress.
Gold and commodities
Gold and commodities have shown resilience amid market volatility. Timmer remains bullish on gold, especially with a weaker dollar and increased infrastructure and defense spending. He highlights the importance of the CRB Raw Industrial index, which reflects spot commodity prices without futures trading. A rounding bottom in this index suggests renewed spending on raw materials, supporting the global reflation story.
The role of active management
Active management strategies become crucial in such environments. Timmer argues that while constructing a portfolio to maximize risk-adjusted returns is essential, the real challenge lies in maintaining discipline during market fluctuations. Advisors play a vital role in helping investors stay focused on their long-term goals and rebalance their portfolios when necessary.
Conclusion
Jurrien Timmer provides a comprehensive overview of the current market dynamics, emphasizing the importance of discipline, active management, and understanding global trends. While market volatility is an inherent part of investing, Timmer's insights offer valuable guidance for navigating these uncertain times. Investors should focus on long-term goals, rebalance their portfolios when necessary, and consider opportunities in global and emerging markets. By staying informed and disciplined, investors can better withstand market fluctuations and position themselves for future growth.
