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

December 17, 2020

  • Excessively Positive Sentiment Points to Early 2021 Returns Being Pulled Forward. The recent rally has pushed investors to exuberant levels, they are not focused on near-term risks. Valuations are expensive, and continued earnings growth is needed to justify them. Valuations and sentiment may cap near-term upside, as investors may have gotten ahead of the 2021 story. This may limit stock appreciation potential in Q1 2021
  • That being said, a pause in the stock market doesn’t mean another bear market is imminent. Thanks to healthy credit fundamentals going into the pandemic and coming out of it, it’s unlikely the economy or the market is going to come under pressure. Favorable bank, corporate, and consumer credit fundamentals coming out of this disruption still point to optimism for a strong recovery
  • Last month we highlighted how growth signals had gotten more positive, giving us reason to abandon concerns we were in a range-bound market. Even before the election, management teams started to show more confidence in their outlook, and with the vaccine providing visibility, investment plans may resume sooner, helping drive earnings growth. While there could be near-term market uncertainty, fundamentals should bounce back rapidly