Valens Market Phase Cycle Monitor – February 2025 – The Rally We Should’ve Had in 2022
February 21, 2025
- We’re finally getting the rally we should’ve had in 2022. At the time, rampant inflation and volatility in the energy market followed by a surge in interest rates took all of the wind out of the market’s sails. Financial conditions have finally loosened back to levels last seen in late 2021, signaling room to run.
- A slight hiccup won’t stop the banks from opening the vault. While banks did slightly tighten their lending standards in the fourth quarter, most signs point to more credit creation in the coming quarters. Namely, C&I demand continue rising, the yield curve remains un-inverted, and overall financial conditions continue loosening. If credit availability continues to improve, companies may shift from just refinancing debt maturities to borrowing for growth, fueling even stronger earnings growth the next few years.
- Corporates Are Finally Investing In The Future. Analysts expect AI and a broader market recovery to fuel a slight recovery in growth this year. Investment trends show that is warranted. After seeing profits shrink 9% in 2023, investors are betting corporate margin expansion and growth can fuel an earnings recovery. Improving credit conditions could facilitate this. Also, data on hard asset investment, partly thanks to AI, suggests they may be putting money to work.
- Monthly inflections:
- Credit (55% of macro outlook): Neutral (no change – upgrade watch)
- Earnings Growth (30%): Neutral (no change – upgrade watch)
- Momentum/Sentiment (10%): Negative (downgrade)
- Valuations (5%): Negative (no change)
- Timetable Recommendation: 50% Equity/50 Bond Split for 5-10 Year Money and 12 Month Dollar Cost Averaging.
