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

• Credit Spreads Levels Are As Important As Their Rate of Change… They Remain Low. There has been a great deal of discussion about rising rates recently. What is far more important than that they are rising is that even after the recent rise in the risk-free rate, the cost for U.S. corporates to borrow remains near historically low levels. Favorable bank, corporate, and consumer credit fundamentals coming out of this disruption still point to optimism for an ongoing recovery
  
  
• Through Q2 and Q3 2020, management sentiment pointed to a rapid re-acceleration of investment after the pandemic, thanks to optimism on growth. As highlighted last month, in Q4 and particularly in the January and February earnings season, management is 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
  
  
• After having flashed warning signs the past 2 months, sentiment indicators are finally moderating after the recent sell-off. More neutral sentiment indicators mean less positive news doesn’t need to point to a sell-off in the near-term, it’s more likely to just mean a more sideways and volatile market, until growth can re-engage