Valens Market Phase Cycle Monitor & Corporate Credit Macro View for January 2018

January 17, 2018

Market Phase Cycle™ Investing Strategy

2018 is shaping up similar to 2017 – and that is very good for investors

In late 2016 into early 2017, we repeatedly highlighted that fundamentals appeared to be accelerating favorably, and this would be a tailwind for markets for the coming year.

As we enter 2018, we see many factors pointing similarly for the markets. Management teams continue to be ramping up investment, and corporate earnings are benefiting from the corporate tax cut. Valuations remain reasonable. Also, credit risk remains muted with strong balance sheets and income statements, and limited debt maturity risks. These all warrant continued upside in 2018.

In early 2017, there were limited concerns for the coming year that investors had to watch for. In 2018, if we had to watch for anything, later in the year there may be questions about inflation and an inverted yield curve.

These are issues investors are likely to be talking about. Long-term these also are signals that have proven to help signal risks for the market. However, they do not mean impending near-term equity market doom in 2018, for the reasons mentioned above. This is why it continues to be a buy-the-dip market environment for the coming year:

  • Bear market cycles do not happen without a credit crisis, and UAFRS fundamental analysis credit risk is muted until 2020-2021 – which would line up with the 18+ month lead that an inverted yield curve generally gives for a recession
  • UAFRS analysis shows market valuations are not aggressive and earnings growth justifies upside – it is this strong earnings growth that is driving inflation
  • Investor sentiment remains muted, investors remain risk-focused, limiting the potential for significant corrections, and facilitating a buy-the-dip environment

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