Valens Market Phase Cycle Monitor – March 2023 – The Fed’s Efforts To Slow Growth Are Having Their Desired Effects

March 16, 2023

  • The Fed’s Efforts To Slow Growth Are Having Their Desired Effects. Uniform earnings growth continues to decelerate. In late 2022, data showed management teams holding off on capex, and in early 2023, management teams slowed overall borrowing as well. The Fed’s efforts have pushed management teams to be more cautious.
  • While credit availability is lacking, healthy corporate and consumer balance sheets signal any recession does not need to be a deep recession. Healthy corporate and consumer balance sheets limit the risk that ongoing tightening leads to a credit rout and waves of defaults.
  • After the recent pullback and market volatility, investor sentiment is no longer extended. More neutral sentiment is likely to reduce market volatility in the short-term.
  • Monthly inflections:
    • Credit (55% of macro outlook): Negative (no change)
    • Earnings Growth (30%): Negative (downgrade)
    • Momentum/Sentiment (10%): Neutral (upgrade)
    • Valuations (5%): Negative (no change)
  • Timetable Recommendation: 50/50 Split for 5-10 Year Money and 22 Month Dollar Cost Averaging.

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