Valens Market Phase Cycle Monitor – November 2022 – The Most Important Yield Curve Inverted, Confirming Medium-Term Recession Risk
November 17, 2022
- The Most Important Yield Curve Inverted, Confirming Medium-Term Recession Risk. 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.
- U.S. management teams still are bullish about investment, but return growth is slowing. U.S. corporate investment has finally been showing signs of growth. This can help earnings surprise on the upside but returns and credit headwinds may reduce that growth going forward.
- After the recent rally, sentiment is neutral while valuation indicators remain negative. This appears to signal we’re in the middle of a sideways market.
- Monthly inflections:
- Credit (55% of macro outlook): Negative (no change)
- Earnings Growth (30%): Bullish (no change)
- Momentum/Sentiment (10%): Neutral (downgrade)
- Valuations (5%): Positive (no change)
- Timetable Recommendation: 50/50 Split for 5-10 Year Money and 18 Month Dollar Cost Averaging.
