Valens Market Phase Cycle Monitor & Corporate Credit Macro View for November 2019

• Early credit warning signs and accelerating growth sounds like a late stage Bull. The last few Market Phase Cycle reports read like a mid cycle Bull report for a sideways market digesting earnings growth. However, fundamental and management sentiment data coming out of Q3 earnings season point to accelerating earnings growth, at the same time that credit lending standards are starting to flash signs of tightening. This is a classic set up for the beginning of the late stage of a bull market, where growth takes over, driving a market higher. Signs of strong 2020 earnings growth and growing management confidence on this issue point to continued reason for fundamental acceleration
• While credit lending standards point to early reasons for monitoring credit, there are still no signals of an impending credit crisis. Low cost to borrow, favorable credit fundamentals, and a recent wave of refinancing gives room for corporates. A low to no credit risk environment suggests limited risk to US equities in 2019 and into 2020
• Based on the current macro context, equity valuations are at reasonable levels contrary to as reported metrics. With valuations not extended and earnings growth potentially accelerating, longer term equity market upside continues to be warranted