Timmer: Investment Clock Moves 'Past Midnight' Into Zone That Preceded 2018 and 2022 Slumps

Fidelity's Jurrien Timmer has noted that the Investment Clock has advanced beyond the midnight point, with tighter financial conditions starting to dampen gains driven by earnings. He pointed to 2018 and 2022 as the two most recent instances of this occurrence.

Fidelity's Investment Clock is a tool that plots financial conditions against earnings growth, and the current reading shows conditions only slightly tight. However, data from the London Stock Exchange Group (LSEG) indicates that analysts are forecasting a 30.6% rise in S&P 500 profits for the third quarter.

Why is a slight tightening starting to bite now?

Timmer, who serves as Fidelity's director of global macro, shared the reading on X, with chart data running through October 11.

“It does appear that the investment clock has moved “past midnight” with a slight tightening in financial conditions now starting to temper the earnings-driven price momentum.”

Jurrien Timmer, Fidelity (X post)

It does appear that the investment clock has moved “past midnight” with a slight tightening in financial conditions now starting to temper the earnings-driven price momentum. The last two cycles where this happened were 2022 and 2018. pic.twitter.com/JAe0dYNlHS

— Jurrien Timmer (@TimmerFidelity) October 14, 2026

The horizontal axis on the chart scores financial conditions relative to their 52-week history. Positive readings point to conditions that are tighter than usual. The black trail, which traces the market since October 2022, now ends just to the right of zero.

In the meantime, Treasury yields have risen in step with this shift. The 10-year yield reached 5.34% on October 1, marking its highest level since early 2002. The Federal Reserve raised rates in September, which was its first such move since 2023.

According to CME FedWatch, a futures-based odds tracker, the probability of a Fed hike in October was near 18% as of October 8. Goldman Sachs is now anticipating that the next hike will come in December.

Can 30% earnings growth outrun the 2022 playbook?

Back in 2022, earnings continued to climb even as valuations shrank. Forward earnings gained 6.2% while the multiple investors were willing to pay fell by 30%, according to Yardeni Research.

The S&P 500 dropped 25.4% from January 3 to October 12 of that year, with shrinking multiples driving the decline. Similarly, in 2018, the index fell 19.3% from its September 20 peak to its December 24 low, as calculated by an investor letter.

Timmer drew the comparison to 2022 in a September Fidelity note. However, he noted that trailing earnings growth close to 30% could provide a larger buffer this time around.

The current test extends through the October 28 Fed decision and the earnings season. The S&P 500 closed at a record high above 7,800 on October 6, as reported by Reuters.

Thus, with 10-year yields above 5% in early October, profit growth may need to keep pace with or exceed shrinking valuations.