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

December 19, 2019

  • Santa’s job may be done soon, but his rally has more room to run into 2020. After a challenging few months, we have seen renewed fundamental tailwinds coming out of the Q3 2019 earnings season into Q4 2019. Fundamental and management sentiment data point to accelerating earnings growth, at the same time that credit lending standards are starting to flash signs of tightening. This is a classic set up for the beginning of the late stage of a bull market, where growth takes over, driving a market higher. Signs of strong 2020 earnings growth and growing management confidence on this issue point to continued reason for fundamental acceleration

  • While credit lending standards point to early reasons for monitoring credit, there are still no signals of an impending credit crisis. Low cost to borrow, favorable credit fundamentals, and a recent wave of refinancing gives room for corporates. A low to no credit risk environment suggests limited risk to US equities in 2019 and into 2020

  • Based on the current macro context, equity valuations are at reasonable levels contrary to as reported metrics. With valuations not extended and earnings growth potentially accelerating, longer term equity market upside continues to be warranted