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

• With The Market Re-testing June Highs, Last Month’s Playbook Remains Unchanged. Earnings growth and investment are likely to recover quickly from the recession, due to a need to invest, and management teams’ growing confidence and lack of concern about structural issues. Fundamentals should bounce back rapidly, but after the recent rally, equity markets are pricing in a well-executed recovery, capping upside
• The coronavirus pandemic has pushed the world into a short-term recession, but thanks to credit fundamentals, it’s likely not to be a protracted deep recession or long recovery. Favorable bank, corporate, and consumer credit fundamentals heading into this disruption still point to optimism for a strong recovery
• Sentiment indicators have become excessively positive. After the impressive rally since March, investors have become overly reward-focused, and are not prepared for any negative news in the near term. Investors should remain patient as Q2 earnings and negative headlines are offering reason for investors to become more risk-focused. With valuations capping upside but elevated headline risk, near term market downside may be probable, though the drop is capped by a lack of credit overhangs