Research

Valens Market Phase Cycle Monitor & Corporate Credit Macro View for March 2018

Market Phase Cycle™ Investing Strategy

The fundamentals, not the headlines, will end up dictating the market direction


Over the last several months, there has been increased volatility in the market. The volatility has been driven by headlines about inflation, trade, and the management at the Fed, to name a few examples.

While the market has been reacting to this news, it has missed some important signals. In Q4 2017, 75% of the S&P 500 beat earnings estimates. S&P earnings in aggregate rose 16%. S&P earnings are forecast to grow 15% in 2018 on a Uniform Accounting basis.

Analysis of management sentiment shows that they are growing more bullish, and are seeking opportunities to invest in growth. This is likely to support and lead to even greater earnings and top-line growth.

Credit standards continue to ease, and corporate credit risk remains muted with strong cash flows, strong cash balances, and strong balance sheets.

Investors currently have very neutral sentiment, because of excessive focus on headline risk. Much more positive sentiment is likely warranted, due to strong corporate fundamental momentum.

Investors’ focus on headline risk is likely to lead to continued volatility in the near-term. However, considering the strong and improving fundamentals of the market as we look forward into 2018, investors who use these corrections as buying opportunities will benefit.