Valens Market Phase Cycle Monitor – July 2024 – The Market Is Betting The Calvary Is About To Arrive
July 18, 2024
- The Market Is Betting The Calvary Is About To Arrive. The first half of 2024 was a story of AI and massive debt refinancing removing any existential crisis for companies. The second half of the year has kicked off with optimism as we may see growing access to credit for the first time in over two years. The Fed is signaling slowing inflation and growing consumer issues give it enough reasons to cut interest rates, opening up credit markets. A wave of refinancing removed the risk of a market collapse, and now the potential for the Fed to start to ease financial conditions can start to fuel the next phase of the economy and market.
- Analysts expect AI and a broader market recovery to fuel a slight recovery in growth this year, contrary to management’s actions and indications. After seeing profits shrink 9% in 2023, investors are betting corporations can resume margin expansion and growth to fuel an earnings recovery. Improving credit conditions could facilitate this. However, growing corporate leadership stress about the macro outlook and stress to consumer balance sheets may limit how explosive growth can be.
- After the recent strong rally, valuations reflect a bet on growth resuming, and the market is now at euphoric sentiment levels, increasing the risk of volatility.
- Monthly inflections:
- Credit (55% of macro outlook): Negative (no change – on upgrade watch)
- Earnings Growth (30%): Neutral (no change)
- Momentum/Sentiment (10%): Negative (downgrade)
- Valuations (5%): Negative (no change)
- Timetable Recommendation: 40% Equity/60% Bond Split for 5-10 Year Money and 18 Month Dollar Cost Averaging.
