by Jurrien Timmer, Director of Global Macro for Fidelity Management & Research Company
Life in fast forward
My annual ritual of reviewing the year and laying out scenarios for the next is already at hand, much sooner than seemed possible 12 months ago.
It’s hard to believe that another year has (almost) gone by. Life seems to be in a state of fast forward these days, much like those TikTok videos that play the audio back at 1.5x. Personally, I am not a fan of the fast forward playback. To me it’s like cooking dinner in a microwave instead immersing myself in the “low and slow” process. But time is not always a luxury we can afford.
For me, a good 2025 motto might be “life happens while we make other plans.” It’s been a year of twists and turns, in the markets and personally.
After a few more busy weeks at the office, filled with board meetings and holiday receptions, hopefully we can all retreat and replenish until January, when we do it all over again.
It’s been a busy year of traveling, which is par for the course for me. I have one more flight coming up in a few weeks, back to Holland to take over from my middle brother in looking after my parents. This Christmas will be the first in my parents’ 70 years of marriage where they will not be under one roof. It’s only temporary, but until then, duty calls.
Speaking of travel, I am huge fan of the flighty app, which I use to remember when and where I’m going, keep track of inbound flights, and check out how old the plane is (airplane geek alert!). According to my 2025 Flighty “passport,” I have been on 74 flights (soon 75) for a total of 103,177 miles this year. I have been to 36 airports on 12 airlines, and have lost 23 hours to delays. The most flown aircraft was the A321nwo, which happens to be my favorite. A hat tip to my fellow Fidelity road warriors who take the Fidelity mission on the road almost every week in order to bring it to our customers.
What a year
The year 2025 started out with a tumultuous first few months of tariff drama, leading to existential questions about trade wars turning into capital wars and foreign investors selling US assets of all kinds. That fortunately didn’t happen, and instead we got something more benign. Instead of chaos, the year as of early December has seen major assets post gains, with the exception of Bitcoin. Even bonds have put in a solid performance. To me the most notable and welcome feature of the leaderboard this year is the performance of non-US equities. In this era of elevated concentration risk, we need alternatives, and this year we have them.
The questions remain: Will the AI boom turn into a circular bubble, taking concentration risk from a tailwind to a headwind? Is the revival in international equities a brief blip or the start of a structural wave? Will the Fed be “flipped” into a Treasury tool to support US fiscal dominance, and if so, what will that do to the long end, the dollar, and inflation expectations? What does the divergence between gold and bitcoin tell us, if anything? Is another bitcoin bull market coming to an end, with the culprit this time being an unwinding of Treasury company financial engineering?
State of the cyclical bull
The cyclical bull market is now 38 months old and has a produced a total return of 100% for the cap-weighted S&P 500 and 59% for the equal-weighted index. As of last week, both indices made a new all-time high, which is good to see.
The first few years of the bull market that started in October 2022 were amplified by P/E multiple expansion. But in 2025 earnings growth has accelerated and has been driving the bull market bus.
Earnings boom
As it currently stands, earnings are expected to grow 12% this year, which would be a similar to 2024. The expectations for 2026 and 2027 are for 14% growth each. If those pan out, the market is on good footing with an equity risk premium in the mid-4’s and a P/E ratio in the low 20’s. But if earnings mean-revert to their long term average of 6-7%, the market is over its skis.
Questions remain whether we are in a boom or bubble, and the increasing scrutiny in recent weeks regarding the open ended nature of the AI capex boom is good to see. Bubbles are not formed when investors think critically.
That’s not to say that the speculative phase has ended. Following a healthy shake out a few weeks ago, the “cats and dogs” are bid again, as can be seen by the GS non-profitable tech basket below.
Speculative activity in the options market has also recovered following the 5% correction in November.
Bear steepener
While the US 10-year yield has been eerily quiet since the spring, the same cannot be said for Japan or Europe. An era of fiscal dominance should mean higher term premia across the board, even as central banks are easing (as most of them are). On the left (below) I show policy rates and on the right are the 10-year benchmark yields.
The Fed
All eyes are on the Fed, of course, which will soon meet again and presumably cut rates another ¼ point. That will take the Fed Funds rate to 3.50-75%, bringing policy closer to the Fed’s long-term view of neutral (3%). That level assumes that inflation is 2%, which of course it’s not. The CPI is growing at 3.0% and the core-PCE at 2.8%. The Truflation index is up only 2.4% year-over-year, which is comforting.
Balance sheet privatization
A big topic of conversation these days is whether the post-Powell Fed will “privatize” the Fed’s balance sheet by enticing banks to buy my more Treasuries. A combination of a steeper yield cure (created through more rate cuts) and deregulation would presumably create more demand for Treasuries. It’s a page from the 1940’s when the Fed did essentially the same thing by capping T-Bill rates at 3/8% to incentivize banks to ride the cure. They did so in a big way. Already we are seeing a bit of this, with bank holdings of Treasuries and Agencies taking share from the Fed’s SOMA account. However, as the chart shows it still a drop in the bucket against a Federal debt that is growing at fast forward.
Santa
For now, the market is approaching year-end with strong earnings momentum, a better sentiment backdrop following the palate-cleansing of speculative excesses, an accommodative Fed, and a quiet bond and currency market. It’s not a bad way to end the year!
Bitcoin: fun with math
Coming back to the leaderboard at the top of this report, Bitcoin has been the lone loser this year in terms of performance. That can easily change with 3 weeks left, of course, but this is where things stand currently. What was widely considered to be a tailwind from Bitcoin Treasury companies offering a Bitcoin “yield” by issuing shares to buy BTC, has turned into a possible headwind. In the process, Bitcoin has broken its uptrend line, raising questions whether another 4-year cycle has come to an end.
It’s hard to tell in real time whether a new winter is upon us, but looking at the evolving wave structure of Bitcoin’s maturing network curve, we can see that the most recent bull market (from around $16k in 2022) looks pretty mature. I’ll explain.
If we line up the first 5 waves of advances since 2010, we can see a clear pattern in which each successive wave is smaller in magnitude but longer in duration. Lining up these waves below, the right panel shows that the slope of each wave gets smaller and smaller. If we create a scatter plot of the magnitude (CAGR) and duration (number of weeks), we get the chart on the left.
So far, the 2022-2025 wave has lasted 145 weeks and has produced a CAGR of 105%. Based on the regression formula on the left, that should have been (or perhaps will still be) a CAGR of 104% but over 160 weeks instead of 145, leading to a price high of $150k (instead of $125k) before the next winter emerges. It's pretty close, so this tells me that the pattern of lower slopes could hold in the future. This makes sense since the adoption curve and network evolve and becomes flatter over time.
Where am I going with this? My point is that based on these assumptions wave 5 should continue for another few months until Bitcoin reaches $150k, but per the analysis above we got close enough to that outcome that wave 5 may well have ended at October’s high of $125k. If so, how deep and long the correction will be is anyone’s guess, but my sense is that it might be in the $65-75k area sometime in 2026. Bitcoin bear markets have typically lasted only a year (or less), and this price zone offers strong support.
If a wave 6 emerges from that winter, I believe its slope should be flatter than wave 5, possibly producing a CAGR on the order of 60-65% instead of 100-105%. That assumption would take Bitcoin to around $300k in 2029. Take this all with a grain of salt, but there is a pattern here that could repeat. Fun with math!
This information is provided for educational purposes only and is not a recommendation or an offer or solicitation to buy or sell any security or for any investment advisory service. The views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Opinions discussed are those of the individual contributor, are subject to change, and do not necessarily represent the views of Fidelity. Fidelity does not assume any duty to update any of the information.
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