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

• Stalled earnings growth and sentiment point to a range bound market. Recent signals around corporate investment growth and management concerns about cost pressures from trade and macro overhangs point to slower earnings growth going forward. Also, while sentiment indicators have come off elevated levels in late July, they never reached capitulatory levels that would imply a floor in the recent market correction. 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, recessions are not caused by weak earnings growth, 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