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

September 24, 2020

  • We Warned A Pullback Was Coming – Don’t Panic, Just Watch The Growth Signals. Profitability is likely to recover quickly from the recession, and key indicators point to a reason for optimism for longer-term growth. However, management sentiment indicators may be shifting more negatively around growth, which could hold down valuations in the near-term. Fundamentals should bounce back rapidly, but growing management pessimism about growth may disappoint investors in Q3
  • The coronavirus pandemic has pushed the world into a short-term recession, but thanks to credit fundamentals, it’s likely not to be a protracted deep recession or long recovery. Favorable bank, corporate, and consumer credit fundamentals heading into this disruption still point to optimism for a strong recovery
  • Sentiment indicators have moderated. After the recent pullback, investors are no longer ignoring risks in the near term. Valuations are expensive, though continued earnings growth would justify them. Valuations may cap near-term upside, though any drop due to valuations, growth, and sentiment signals is capped by a lack of credit overhangs

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