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

October 17, 2019

  • It’s steady as she goes in a choppy sea, but no storm clouds on the horizon. For those who have read the last two Market Phase Cycle reports, this month’s report will read as more of a confirmation of prior signals. Signals around investment and earnings growth, valuations, credit, and sentiment are all signaling a sideways market, with limited growth opportunities in the near-term, but limited real downside risk catalysts. Weaker earnings growth and neutral technical signals point to a likely range-bound market in the near-term, until earnings can re-engage
  • While headlines abound about recession, it is important to note that recessions are not caused by weak earnings growth, rather they are caused by credit destruction. There are no signals of this coming. A low-to-no credit risk environment suggests limited risk to US equities in 2019
  • Based on the current macro context, equity valuations are at reasonable to low levels. While as-reported metrics may imply valuations are expensive, current market expectations for earnings and growth are low. With the market modestly undervalued based on fundamentals, longer-term equity market upside is warranted