Valens Market Phase Cycle Monitor – August 2025 – Banks Are Making Up Their Minds About Tariffs
August 21, 2025
- Credit remains neutral but on upgrade watch. Banks are slowing down their tightening, credit spreads remain historically tight, and C&I demand is rising. Early signals suggest that if the Fed proceeds with its anticipated rate cuts, credit creation may accelerate further later this year, potentially fueling incremental growth and investment activity.
- Sentiment has become euphoric. The market’s rally has pushed active equity allocations, investor correlations, and put/call ratios into extremely elevated levels, surpassing those seen at Liberation Day. This suggests limited upside in the near term and a heightened risk of volatility if sentiment reverses.
- Valuations have risen to stretched levels. After moderating earlier this year, the Uniform P/E ratio has now climbed back to approximately 24x, which is above the range we consider justified given forward earnings expectations and historically associated with more modest future returns.
- Monthly inflections:
- Credit (55% of macro outlook): Neutral (no change)
- Earnings Growth (30%): Positive (no change)
- Momentum/Sentiment (10%): Negative (no change)
- Valuations (5%): Negative (no change)
- Timetable Recommendation: 50% Equity/50 Bond Split for 5-10 Year Money and 10 Month Dollar Cost Averaging.