Stocks may have rebounded after the Federal Reserve left interest rates unchanged, but investors shouldn't expect a significant rally until earnings growth returns, Fidelity Investment's director of global macro said Thursday.
Jurrien Timmer spoke one day after the Federal Open Market Committee announced it would keep its Fed funds rate within a range of 0.25 to 0.50 percent but indicated it intended to raise rates at least once by year's end.
The S&P 500 declined about 2 percent in the two weeks heading into the Fed meeting as the 10-year Treasury ticked up. The S&P ended Wednesday's session about 1 percent higher, but Timmer said he's not convinced stocks will move substantially higher.
"If there's no earnings growth," he told CNBC's "Squawk Box" "There's only so much you can do in terms of a market rally no matter what the Fed does, and that's why we're kind of stuck in this holding pattern here."
The Fed has not increased rates since December, remaining on hold as policymakers assess the economy's ability to handle higher rates amid tepid growth at home and abroad.
Whether the stock market can weather a rate hike comes down to earnings growth, Timmer said. Despite four straight quarters of earnings declines, equities have risen as investors pile into the market for equities and other risk assets to find returns that government debt is no longer producing.
That is why stocks have been so sensitive to a recent rise in the U.S. 10-year Treasury yield, Timmer said. If the 10-year yield were to rise by 1 percent, the stock market would look roughly 20 percent overvalued, he said. But if that same increase dovetailed with earnings growth of about 6 percent, stocks would still look undervalued relative to bonds, he added.
"That's the fundamental problem that we have with this monetary policy cycle, and that's I think why the market is looking through [the Fed's decision] and seeing really only about one more hike for the cycle, which I think is the right way to look at it," Timmer said.
The market currently puts the odds of a rate hike in December at about 58 percent, according to the CME's FedWatch Tool.