Valens Market Phase Cycle Monitor & Corporate Credit Macro View for February 2021

• The Market Continues To Rise, While Growth and Inflation Signals Give Us Pause. Through Q2 and Q3 2020, management sentiment pointed to a rapid re-acceleration of investment after the pandemic, thanks to optimism on growth. In Q4 and in particular in the January 2021 earnings season, management are showing more reservation, which may slow earnings growth which the market is already pricing in. Corporate fundamentals signal a strong recovery in profitability, but a pause in growth
• The recent rally has pushed investors to exuberant levels, they are not focused on near-term risks. Valuations are expensive, and with rising inflation signals, they may need to be adjusted down. Sentiment indicators continue to flash warning signs, and inflation and growth driven pressures on valuation could point to a correction or prolonged sideways market
• 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 an ongoing recovery