In a note published on Tuesday, Jurrien Timmer, Director of Global Macro at Fidelity Investments, discusses how a shifting economic landscape could influence markets, central bank policy, and the trajectory of both Bitcoin and gold. With the S&P 500 hitting new highs and the so-called \u201cTrump Trade\u201d reversing course, Timmer offers nuanced insights into fiscal policy, inflation, and the role of risk assets in a \u201climbo\u201d market environment.<\/p>\n
Timmer observes<\/a> that the first six weeks of 2025 have brought unexpected market moves and an unusually high \u201cnoise-to-signal ratio.\u201d The dominant market expectation coming into the year\u2014anticipating \u201chigher yields, a stronger dollar, and outperforming US equities\u201d\u2014has abruptly flipped. He notes: \u201cIt seems so 2025 that the consensus trade of higher yields, a stronger dollar, and outperforming US equities has turned into the opposite.\u201d<\/p>\n Timmer highlights that Bitcoin, fresh off a year-end rally, remains on top of rolling three-month return rankings, followed closely by gold, Chinese equities, commodities, and European markets. At the lower end of the table, the US dollar and Treasuries are bringing up the rear.<\/p>\n Despite the S&P 500\u2019s record levels, Timmer calls this a \u201cdigestion period\u201d following the post-election optimism. He explains that the market beneath the headline index is much less decisive. According to Timmer, the equal-weighted index remains on hold, with only 55% of stocks trading above their 50-day moving averages.<\/p>\n \u201cSentiment is bullish, credit spreads are narrow, the equity risk premium (ERP) is in the 10th decile, and the VIX is at 15. The market appears to be priced for success.\u201d Timmer underscores that while earnings growth was robust at 11% in 2024, revisions appear lackluster, and there are open questions about what might happen if long-term rates climb towards 5% or beyond.<\/p>\n One of the most critical pieces of Timmer\u2019s analysis centers on Federal Reserve policy. He points to the recent CPI report<\/a>, with a year-over-year core inflation figure of 3.5%, as a near-consensus indicator that the Fed will remain on pause. \u201cIt\u2019s now all but unanimous that the Fed is on hold for some time to come. That\u2019s exactly right, in my view. If neutral is 4%, I believe the Fed should be a smidge above that level, given the potential likelihood that \u20183 is the new 2.\u2019\u201d<\/p>\n He warns about the possibility of a \u201cpremature pivot,\u201d recalling the policy mistakes from the 1966\u20131968 period, when rate cuts happened too early, ultimately allowing inflation to gain a foothold.<\/p>\n With the Fed apparently sidelined, Timmer believes the next market driver for interest rates will come from the long end of the curve. Specifically, he sees tension between two scenarios: one featuring endless deficit spending and rising term premiums\u2014hitting equity valuations\u2014and another emphasizing fiscal discipline, which would presumably rein in long-dated bond yields.<\/p>\n Timmer also remarks that weekly jobless claims may come into sharper focus for bond markets, given how government spending under the new administration could influence employment data.<\/p>\n Timmer points out a potential bullish pattern\u2014a head-and-shoulders bottom\u2014in the Bloomberg Commodity Spot Index. Though he stops short of calling it a definitive shift, he notes that commodities remain in a broader secular uptrend and could see renewed investor interest if inflation pressures stay elevated or fiscal conditions remain loose.<\/p>\n Gold, he notes, has been \u201ca big winner\u201d in recent years, outperforming many skeptics\u2019 expectations: \u201cSince 2020, gold has produced almost the same return as the S&P 500 while having a lower volatility. In my view, gold remains an essential component of a diversified portfolio in a regime in which bonds might remain impaired.\u201d<\/p>\n Timmer sees gold testing the critical $3,000 level amid a global uptick in money supply and a decline in real yields. Historically, gold has shown a strong negative correlation with real yields, though Timmer believes the metal\u2019s strength of late may also reflect fiscal rather than monetary dynamics\u2014particularly, geopolitical demand from central banks in China and Russia.<\/p>\n According to Timmer, the outperformance of both gold and Bitcoin has \u201csparked a lot of conversation about monetary inflation.\u201d However, he draws a distinction between the \u201cquantity of money\u201d (the money supply) and the \u201cprice of money\u201d (price inflation).<\/p>\n \u201cThe point of this exercise is to show that the growth in traditional asset prices over time can\u2019t just be explained away by monetary debasement (which is a favorite pastime of some bitcoiners),\u201d he writes.<\/p>\n Timmer\u2019s charts suggest that while nominal M2 and nominal GDP have moved in near lockstep for over a century, consumer price inflation (CPI) has lagged somewhat behind money supply growth. He cautions that adjusting asset prices solely against M2 may produce misleading conclusions.<\/p>\nBitcoin Vs. Gold<\/h2>\n