Analysis

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June 18, 2020
Valens Market Phase Cycle Monitor & Corporate Credit Macro View for June 2020
  • There are signs the U.S. recovery could be quick, but markets are already expecting it. Earnings growth and investment are likely to recover quickly from the recession, due to a need to invest, and management teams’ growing confidence and lack of concern about structural issues. Fundamentals should bounce back rapidly, but after the recent rally, equity markets are pricing in a well executed recovery, capping upside
  • The coronavirus pandemic has pushed the world into a short-term recession – but that does not mean a protracted deep recession or long recovery thanks to credit fundamentals. Favorable bank, corporate, and consumer credit fundamentals heading into this disruption still point to optimism for a strong recovery
  • Sentiment indicators have become excessively positive. After the impressive rally since March, investors have become overly reward focused, and are not prepared for any negative news in the near-term. Investors should remain patient as Q2 earnings in July are likely to offer reason for investors to be reminded of risks to the recovery. With valuations capping upside but elevated headline risk, near-term market downside may be probable, though the drop is capped by a lack of credit overhangs
May 21, 2020
Valens Market Phase Cycle Monitor & Corporate Credit Macro View for May 2020
  • The data says expect a retest of the lows, but it says don’t panic during it, buy. The coronavirus pandemic has pushed the world into a short-term recession and credit spreads point to near-term disruptions – but that does not need to mean a protracted deep recession or long recovery thanks to credit fundamentals. Favorable bank, corporate, and consumer credit fundamentals heading into this disruption still point to optimism for a strong recovery, but credit spreads point to near-term volatility
  • Corporate fundamentals and valuations warrant optimism for equity upside if the recession is not protracted. Strong corporate profitability and fundamental factors driving a need to invest point to fundamental reasons for market upside after this overhang is removed
April 23, 2020
Valens Market Phase Cycle Monitor & Corporate Credit Macro View for April 2020
  • A month further in the crisis, the long-term fundamental picture remains positive. The coronavirus pandemic has pushed the world into an almost certain short-term recession – but that does not need to mean a protracted deep recession or long recovery thanks to credit fundamentals. Favorable bank, corporate, and consumer credit fundamentals heading into this disruption still point to optimism for a strong recovery
  • Corporate fundamentals and valuations warrant optimism for equity upside if the recession is not protracted. Strong corporate profitability, management optimism about growth before the pandemic surprise, and very pessimistic investor sentiment based on current valuations point to fundamental reasons for market upside after this short-term overhang is removed
March 19, 2020
Valens Market Phase Cycle Monitor & Corporate Credit Macro View for March 2020
  • Weathering a storm requires a strong foundation, which this economy has. The coronavirus pandemic has pushed the world into an almost certain short-term recession – but that does not need to mean a protracted deep recession or long recovery thanks to credit fundamentals. Favorable bank, corporate, and consumer credit fundamentals heading into this disruption give reason for optimism for a strong recovery
  • Corporate fundamentals and valuations warrant optimism for equity upside if the recession is not protracted. Strong corporate profitability, management optimism about growth before the pandemic surprise, and very pessimistic investor sentiment based on current valuations point to fundamental reasons for market upside after this short-term overhang is removed
February 20, 2020
Valens Market Phase Cycle Monitor & Corporate Credit Macro View for February 2020
  •  Party like it's early 1999 the markets are set up to. Fundamental and management sentiment data point to accelerating earnings growth, at the same time that creditm lending standards are starting to flash signs of tightening. This is a classic set up for the beginning of the late stage of a bull market, where growth takes over, driving a market higher. A set up like early 1999. Signs of strong 2020 earnings growth and growing management confidence on this issue point to continued reason for fundamental acceleration
  • Credit lending standards point to early reasons for monitoring credit, as does the recent re inversion of the yield curve even after the Fed’s lowering of rates in late However, these are often 18 month to 2 year leading indicators, and there are still no signals of an impending credit crisis. Low cost to borrow, favorable credit fundamentals, and a recent wave of refinancing gives room for corporate growth. A low to no credit risk environment suggests limited risk to US equities in 2020
January 23, 2020
Valens Market Phase Cycle Monitor & Corporate Credit Macro View for January 2020
•After a 15% rally since October, the market may be set up to pause don’t panic. After the recent near pause less rally, sentiment indicators have grown overly bullish. This is generally a signal that near term volatility is likely to return, as investors are not focused on risks. This increases the possibility of a negative shock. However, when a dip occurs, it should be viewed as a buying opportunity based on positive corporate and credit fundamentals • Fundamental and management sentiment data point to accelerating earnings growth, at the same time that credit lending standards are starting to flash signs of tightening.This is a classic set up for the beginning of the late stage of a bull market, where growth takes over, driving a market higher. Signs of strong 2020 earnings growth and growing management confidence on this issue point to continued reason for fundamental acceleration
December 19, 2019
Valens Market Phase Cycle Monitor & Corporate Credit Macro View for December 2019
  • Santa’s job may be done soon, but his rally has more room to run into 2020. After a challenging few months, we have seen renewed fundamental tailwinds coming out of the Q3 2019 earnings season into Q4 2019. Fundamental and management sentiment data point to accelerating earnings growth, at the same time that credit lending standards are starting to flash signs of tightening. This is a classic set up for the beginning of the late stage of a bull market, where growth takes over, driving a market higher. Signs of strong 2020 earnings growth and growing management confidence on this issue point to continued reason for fundamental acceleration
  • While credit lending standards point to early reasons for monitoring credit, there are still no signals of an impending credit crisis. Low cost to borrow, favorable credit fundamentals, and a recent wave of refinancing gives room for corporates. A low to no credit risk environment suggests limited risk to US equities in 2019 and into 2020
November 21, 2019
Valens Market Phase Cycle Monitor & Corporate Credit Macro View for November 2019

Summary Headlines – Inside This Month

  • Early credit warning signs and accelerating growth sounds like a late stage Bull. The last few Market Phase Cycle reports read like a mid cycle Bull report for a sideways market digesting earnings growth. However, fundamental and management sentiment data coming out of Q3 earnings season point to accelerating earnings growth, at the same time that credit lending standards are starting to flash signs of tightening. This is a classic set up for the beginning of the late stage of a bull market, where growth takes over, driving a market higher. Signs of strong 2020 earnings growth and growing management confidence on this issue point to continued reason for fundamental acceleration
  • While credit lending standards point to early reasons for monitoring credit, there are still no signals of an impending credit crisis. Low cost to borrow, favorable credit fundamentals, and a recent wave of refinancing gives room for corporates. A low to no credit risk environment suggests limited risk to US equities in 2019 and into 2020
October 17, 2019
Valens Market Phase Cycle Monitor & Corporate Credit Macro View for October 2019

Summary Headlines – Inside This Month

  • It’s steady as she goes in a choppy sea, but no storm clouds on the horizon. For those who have read the last two Market Phase Cycle reports, this month’s report will read as more of a confirmation of prior signals. Signals around investment and earnings growth, valuations, credit, and sentiment are all signaling a sideways market, with limited growth opportunities in the near-term, but limited real downside risk catalysts. Weaker earnings growth and neutral technical signals point to a likely range-bound market in the near-term, until earnings can re-engage
  • While headlines abound about recession, it is important to note that recessions are not caused by weak earnings growth, rather they are caused by credit destruction. There are no signals of this coming. A low-to-no credit risk environment suggests limited risk to US equities in 2019
September 19, 2019
Valens Market Phase Cycle Monitor & Corporate Credit Macro View for September 2019

Summary Headlines – Inside This Month

  • Stalled earnings growth and sentiment point to a range bound market. Recent signals around corporate investment growth and management concerns about cost pressures from trade and macro overhangs point to slower earnings growth going forward. Also, while sentiment indicators have come off elevated levels in late July, they never reached capitulatory levels that would imply a floor in the recent market correction. Weaker earnings growth and neutral technical signals point to a likely range bound market in the near term, until earnings can re engage
  • While headlines abound about recession, recessions are not caused by weak earnings growth, they are caused by credit destruction. There are no signals of this coming. A low to no credit risk environment suggests limited risk to US equities in 2019
August 22, 2019
Valens Market Phase Cycle Monitor & Corporate Credit Macro View for August 2019

Summary Headlines – Inside This Month

  • Weak earnings growth and a recession are two different things, focus on the former.  Recent signals around corporate investment growth and management concerns about cost pressures from trade and macro overhangs point to slower earnings growth going forward.
  • Profits and profitability are growing at a slower rate, though profitability remains at all-time highs across US corporations (UAFRS-adjusted, accurate calculations)
  • The combination of profitability and low-to-no credit risk suggests limited risk to US equities in 2019
July 18, 2019
Valens Market Phase Cycle Monitor & Corporate Credit Macro View for July 2019

Summary Headlines – Inside This Month

  • The Fed makes the trend, and the (upward) trend is your friend. The Fed is set to cut interest rates in July. This, combined with overall lower corporate borrowing costs may allow companies to refinance debt maturity headwalls that have been a potential market overhang. This gives a confirming all clear signal for the next year and beyond
  • Profits and profitability continue to rise to all time highs across US corporations (UAFRS adjusted, accurate calculations)
  • US firms are likely to use profits to increase capital investments in 2019
June 21, 2019
Valens Market Phase Cycle Monitor & Corporate Credit Macro View for June 2019

Summary Headlines – Inside This Month

  • Investors may find pause in buying a market approaching all highs, but improving credit signals provides confidence in buying the Bull market. 
  • Business credit has been flashing early warning signs for 2020 or 2021, providing a market overhang . Recent signals give reasons to think this overhang has been removed, potentially confirming an all clear sign for the next year and beyond
  • Profits and profitability continue to rise to all time highs across US corporations (UAFRS adjusted, accurate calculations)
May 23, 2019
Valens Market Phase Cycle Monitor & Corporate Credit Macro View for May 2019

Summary Headlines – Inside This Month

  • The recent pull-back in the market provides buying opportunities. While headlines may be causing investor concern, fundamentals remain healthy
  • Profits and profitability continue to rise to all-time highs across US corporations (UAFRS-adjusted, accurate calculations)
  • US firms likely to use profits to increase capital investments in 2019
April 23, 2019
Valens Market Phase Cycle Monitor & Corporate Credit Macro View for April 2019

Summary Headlines – Inside This Month

  • As covered in this month’s Litman Letter, the market’s sentiment (aka “the voting machine”) continues to provide buying opportunities where fundamentals tip the scales toward more upside (aka the “weighing machine”)
  • Profits and profitability continue to rise to all-time highs across US corporations (UAFRS-adjusted, accurate calculations)
  • US firms likely to use profits to increase capital investments in 2019
March 15, 2019
Valens Market Phase Cycle Monitor & Corporate Credit Macro View for March 2019
Summary Headlines – Inside This Month
  • We are in the seventh inning of this bull market, and there is still a lot of “baseball” left to play
  • Profits and profitability continue to rise to alltime highs across US corporations (UAFRSadjusted, accurate calculations)
  • US firms likely to use profits to increase capital investments in 2019
February 22, 2019
Valens Market Phase Cycle Monitor & Corporate Credit Macro View for February 2019
Bull markets die on euphoria, no one looks euphoric for this market Bull Markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.  - John Templeton John Templeton was likely the first, and unsurprisingly one of the best, at summarizing what really drives market cycles. It is likely that Templeton would look at today’s market and not yet see the euphoria he referenced in the above quote.
January 17, 2019
Valens Market Phase Cycle Monitor & Corporate Credit Macro View for January 2019
A RECESSION IS COMING … in 1.5-2 years if trends do not change before then The yield curve has flattened dramatically in the past quarter. CDS and bond yields are trending negatively. China and Europe appear to have growth issues, and the Fed may be too hawkish. Cash levels relative to debt maturities are at levels not seen since 2007 and companies will have debt maturity headwalls in 2021 that could be a concern. A recession is coming! Run for the hills!
December 20, 2018
Valens Market Phase Cycle Monitor & Corporate Credit Macro View for December 2018
A deep bear market does not occur without credit risk – we do not see any The basis for the Market Phase Cycle, and what 150+ years of market cycle research shows, is that credit market cycles drive economic cycles and equity market cycles. When access to credit is easy, economic cycles trend positively as do equity markets. When credit markets tighten, and credit destruction happens, equity markets and the economy react similarly.
November 21, 2018
Valens Market Phase Cycle Monitor & Corporate Credit Macro View for November 2018

In the middle of a retest is the hardest, and best, time to trust the (right) data

Tell me if you’ve heard this before:

“Any time the market falls 6%+ in 2 days, investors justifiably ask whether something has changed that should impact their investment thesis.  This is when a consistent framework like the Market Phase Cycle is most valuable.”