Valens Market Phase Cycle Monitor – August 2022 – There Are Actually Three Directions a Market Can Go

August 18, 2022

  • Converging Credit and Profit Stormfronts Cloud The Market Outlook. Credit signals are highlighting a significant tightening of lending availability in the most recent several months. Healthy corporate and consumer balance sheets limit the risk that leads to a credit rout. Tighter credit availability is likely to reduce investment going forward.
  • U.S. management teams still are bullish about investment, but return growth is slowing. U.S. corporate investment has finally been showing signs of growth. This can help earnings surprise on the upside, but returns and credit headwinds may reduce that growth going forward.
  • Oversold conditions created the recent rally. With tougher fundamentals and greater investor optimism, we’re now likely positioned at the high end of a sideways market.
  • Monthly inflections:
    • Credit (55% of macro outlook): Negative (downgrade)
    • Earnings Growth (30%): Bullish (no change)
    • Momentum/Sentiment (10%): Neutral (downgrade)
    • Valuations (5%): Neutral (downgrade)
  • Timetable Recommendation: 50/50 Split for 5-10 Year Money and 18 Month Dollar Cost Averaging.

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