Valens Market Phase Cycle Monitor – April 2024 – A Shrunken Refinancing Headwall De-risks The Market

April 18, 2024

  • A Shrunken Refinancing Headwall De-risks The Market. The potential debt default risk has been significantly reduced. Credit availability is still lacking, and corporations and individual consumers are starting to show pressure from credit tightening, but they are not stretched to the point of threatening a wave of defaults. Without significant refinancing risk, the current tight credit environment is likely to be a tax on growth, as opposed to a potential catalyst for a recession.
  • Analysts expect AI and a broader market recovery to fuel a slight recovery in growth this year, contrary to management’s actions and indications. After seeing profits shrink 9% in 2023, investors are betting corporations can resume margin expansion and growth to fuel an earnings recovery. However, management’s lack of willingness to invest calls that recovery into question.
  • After the recent strong rally, valuations reflect a bet on growth resuming, and the market is now at extended sentiment levels, increasing the risk of volatility.
  • Monthly inflections:
    • Credit (55% of macro outlook): Negative (no change)
    • Earnings Growth (30%): Neutral (upgrade)
    • Momentum/Sentiment (10%): Negative (downgrade)
    • Valuations (5%): Negative (no change)
  • Timetable Recommendation: 40% Equity/60% Bond Split for 5-10 Year Money and 18 Month Dollar Cost Averaging.

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