Valens Market Phase Cycle Monitor & Corporate Credit Macro View for April 2020

• A month further in the crisis, the long-term fundamental picture remains positive. The coronavirus pandemic has pushed the world into an almost certain short-term recession – but that does not need to mean a protracted deep recession or long recovery thanks to credit fundamentals. Favorable bank, corporate, and consumer credit fundamentals heading into this disruption still point to optimism for a strong recovery

• Corporate fundamentals and valuations warrant optimism for equity upside if the recession is not protracted.  Strong corporate profitability, management optimism about growth before the pandemic surprise, and very pessimistic investor sentiment based on current valuations point to fundamental reasons for market upside after this short-term overhang is removed

• Sentiment indicators remain bearish. Even after a strong rally, to see investor sentiment remain this pessimistic points to ongoing volatility in the near-term, and a straight rise higher is unlikely. Investors should remain patient as Q1 earnings and then Q2 earnings in July are likely to offer continued reason for investor pessimism. We may be at the higher end of a range bound market for the next few months before moving higher in the back half of the year