Valens Market Phase Cycle Monitor – March 2025 – The Earnings Hangover Has Ended
March 20, 2025
- The market’s recent pullback hasn’t changed the bigger picture. While concerns over potential tariffs have triggered short-term volatility, S&P 500 next-12-month EPS estimates continue to rise, reinforcing the foundation for long-term equity strength. While sentiment remains a near-term risk, if valuations normalize further, the market could have even more room to run.
- Credit remains stable, keeping the backdrop for growth intact. 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 continues rising, the yield curve is in a better position for banks, and corporate earnings projections are improving. If credit availability continues to improve, companies may shift from just refinancing debt maturities to borrowing for growth, fueling even stronger earnings growth in 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 10 Month Dollar Cost Averaging.
