Valens Market Phase Cycle Monitor – August 2023 – Risk Blind Investors Are Increasing The Risk Of A Correction

August 17, 2023

  • Investors’ Blinders To Risk Are Increasing The Risk Of A Correction. After the recent rally, investor sentiment is once again elevated. More bullish sentiment is likely to increase market volatility in the short-term.
  • Credit availability is lacking, and corporates and individual consumers are starting to show pressure from credit tightening. A better debt maturity schedule for borrowers than in prior cycles reduces the risk of a severe recession, but credit issues highlight the risk of a recession is growing.
  • The Fed’s efforts to slow lending have pushed management teams to be more cautious. Uniform earnings growth continues to decelerate. In late 2022, data showed management teams holding off on capex, and in early 2023, management teams slowed overall borrowing as well.
  • Monthly inflections:
    • Credit (55% of macro outlook): Negative (no change)
    • Earnings Growth (30%): Negative (no change)
    • Momentum/Sentiment (10%): Negative (no change)
    • Valuations (5%): Negative (no change)
  • Timetable Recommendation: 50/50 Split for 5-10 Year Money and 24 Month Dollar Cost Averaging.

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