Valens Market Phase Cycle Monitor & Corporate Credit Macro View for August 2019

August 22, 2019

  • Weak earnings growth and a recession are two different things, focus on the former.  Recent signals around corporate investment growth and management concerns about cost pressures from trade and macro overhangs point to slower earnings growth going forward. While headlines abound about recession, recessions are not caused by weak earnings growth, they are caused by credit destruction.  There are no signals of this coming.  This gives a confirming signals that any sell-off is a buying opportunity in a more range-bound market, not the beginning of a bear market
  • Profits and profitability are growing at a slower rate, though profitability remains at all-time highs across US corporations (UAFRS-adjusted, accurate calculations)
  • The combination of profitability and low-to-no credit risk suggests limited risk to US equities in 2019
  • Continued near-term volatility may require investors to be more nimble. While investor sentiment has moved to more neutral levels after the recent sell-off, sentiment indicators have not yet reached capitulatory levels normally needed to point to a floor in a correction