Valens Market Phase Cycle Monitor & Corporate Credit Macro View for December 2017

January 12, 2018

Market Phase Cycle™ Investing Strategy

As we sing Auld Lang Syne – let us reflect on why this old bull market still has life

As the world rings in to the new year in a few days, many will sing Auld Lang Syne. The lyrics ask if we should put the past behind us, or take the opportunity to remember the friendships that got us where we are today.

It is a perfect time to reflect on one old friend…the current bull market. It is approaching 7 years old (or even longer, depending on how you define the beginning of the bull)…

The phase “bull markets don’t die of old age” has been written a lot of use in the past year, because of the age of this one. John Templeton’s statement that, instead of old age, bull markets “die on euphoria” is relevant when reflecting on some investors concerns as we look to 2018. We are still far away from euphoria, by any definition:

Equity market valuations do not appear euphoric. They do not appear to be pricing in the substantial boost in profitability that corporate tax cuts are about to deliver, let alone the significant potential for upside from any resumption in corporate investment.

Investor sentiment indicators are far from euphoric. Both short-term and intermediate-term also appear very muted

Credit market euphoria, the greatest signal of the impending death of a bull market, also appears far off. M&A and corporations taking on sizable short-term leverage to fuel growth, which could spell a crisis, remains a distant risk. While CDS levels remain tight, it is justified by fundamentals.

So instead of having fears of the year ahead, may we all enjoy the holidays and the new year, knowing we don’t need to worry about this old friend leaving us as we ring in 2018.

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