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

May 21, 2020

  • The data says expect a retest of the lows, but it says don’t
    panic during it, buy.
    The coronavirus pandemic has pushed
    the world into a short term recession and credit spreads
    point to near term disruptions but that does not need to
    mean a protracted deep recession or long recovery thanks
    to credit fundamentals. Favorable bank, corporate, and
    consumer credit fundamentals heading into this disruption
    still point to optimism for a strong recovery, but credit
    spreads point to near term volatility

  • Corporate fundamentals and valuations warrant optimism
    for equity upside
    if the recession is not protracted. Strong
    corporate profitability and fundamental factors driving a
    need to invest point to fundamental reasons for market
    upside after this overhang is removed
  • Sentiment indicators remain bearish. Even after a strong
    rally, to see investor sentiment remain this pessimistic
    points to ongoing volatility
    in the near term, and a
    continued straight rise higher is unlikely. Investors should
    remain patient as after Q1 earnings, Q2 earnings in July are
    likely to offer continued reason for pessimism. We may be at
    the higher end of a range bound market for the next few
    months before moving higher in the back half of the year

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