Fidelity's Timmer Says Q3 Earnings Could Jump 35%. Wall Street Isn't Paying Up.

Is Wall Street sleeping on the biggest earnings quarter in years? Fidelity's Jurrien Timmer seems to think so.

JUST IN: Timmer, Fidelity's Director of Global Macro, says Q3 earnings growth could hit 30% to 35% if the past few quarters' typical bounce repeats. Meanwhile the market's trailing price-to-earnings multiple has dropped 10% year-over-year. That's a weird combo. Profits ripping higher, valuations falling.

The Raw Data

Start with the numbers, because they're wild.

Trailing earnings are up 28%. Forward earnings are expected to climb another 20%. And Timmer's Q3 call? A 30% to 35% jump if the pattern holds.

Now the other side. The trailing P/E multiple is down 10% from a year ago. Investors are paying less for every dollar of profit these companies generate.

That's the disconnect. Growth is accelerating. Multiples are compressing. Those two things usually don't happen at the same time.

Why It's So Strange

Normally when earnings surge, the market pays up. Investors see growth, they bid the multiple higher, and you get a double boost. That's how 2021 worked. That's how most bull runs work.

This time it's different. The index is still up on the year, but the multiple side of the equation is doing zero work. All the gains are coming from actual earnings.

So what's going on? Rate uncertainty. AI capex spending that hasn't shown up in margins yet. Concentration risk in a handful of mega-caps that could sneeze and take the whole index with them.

Investors are watching. Because if earnings really do print 35% growth and the multiple stays flat, that's a math problem in the bulls' favor. Stocks getting cheaper while profits grow is a setup, not a warning.

What the Pros Say

Timmer's case is simple. The last few quarters have shown a typical bounce, a pattern where growth reaccelerates after a soft patch. If Q3 repeats that, 30% to 35% is on the table.

Bears push back hard. They say forward estimates are too rosy. They say 20% forward growth assumes a consumer that's running out of gas and a labor market that's finally cooling. And they argue the multiple is down because the market is smarter than the estimates.

Both sides have a point. But multiple compression into rising earnings has historically been a gift to long-term buyers. Not a guarantee. A gift.

What's Next

Q3 earnings season kicks off in mid-October with the big banks. Then the mega-cap tech names follow in the final week of the month.

Watch three things. First, forward guidance. Companies that raise full-year outlooks validate Timmer's call. Second, margins. If AI spend is finally turning into revenue, that's the tell. Third, the 10-year Treasury yield. If it stays above 4%, multiple expansion gets harder.

And just like that, the setup gets interesting. If earnings grow 35% and the P/E stays put, the market isn't underpricing growth. It's flat-out ignoring it. That's the trade.

Is Wall Street wrong? Or is it just early? October settles it.