Valens Market Phase Cycle Monitor – December 2022 – The Market Follows Earnings Growth, And Earnings Growth Just Turned Negative
December 15, 2022
- The Market Follows Earnings Growth, And Earnings Growth Just Turned Negative. A mix of U.S. corporate investment growth deceleration and profit pressures has turned U.S corporate earnings growth negative. For 2022, Uniform earnings growth is forecast to be -3%, and until that trend changes, the market can’t engage higher.
- Credit signals continue to point to a significant tightening of lending availability. Healthy corporate and consumer balance sheets limit the risk that leads to a credit rout. Tighter credit availability is likely to reduce investment going forward.
- After the recent rally, sentiment is neutral while valuations are now reasonable to elevated. This appears to signal we’re at the higher end of a sideways market.
- Monthly inflections:
- Credit (55% of macro outlook): Negative (no change)
- Earnings Growth (30%): Neutral (downgrade)
- Momentum/Sentiment (10%): Neutral (no change)
- Valuations (5%): Neutral (downgrade)
- Timetable Recommendation: 50/50 Split for 5-10 Year Money and 20 Month Dollar Cost Averaging.