Fidelity Warns of Financial Tightening as Investment Clock Strikes Midnight

As the U.S. stock market hovers near all-time highs, market signals that were observed just before the sharp declines in 2018 and 2022 have been detected again. While corporate earnings are supporting stock prices, rising interest rates and deteriorating financial conditions are beginning to erode the upward momentum. Timmer, a director at Fidelity Investments, warned that the investment clock has struck midnight, indicating that the slight tightening of financial conditions is slowing the stock price increases driven by corporate earnings. He added that the recent two market cycles were in 2022 and 2018. The investment clock presented by Timmer is an indicator that combines financial conditions and corporate profit growth rates to assess the market's position; when tightening begins, even if corporate performance improves, the potential for stock price increases may be limited. Currently, the yield on 10-year U.S. Treasury bonds has risen to around 5.3%, increasing corporate financing costs. The S&P 500 index closed at 7805.45, but internally, weakness is spreading, with only about 43% of stocks above the 200-day moving average. While it is difficult to interpret the current situation as being the same as in 2018 or 2022, Timmer views it as a phase where tightening shocks may occur.

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