Valens Market Phase Cycle Monitor – October 2022 – Zero Earnings Growth Caps Market Upside, Setting Up A Sideways Market

October 20, 2022

  • Zero Earnings Growth Caps Market Upside, Setting Up A Sideways Market. 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 rapid sell-off, sentiment and valuation indicators are overly negative. This reduces the risk of a further drop as we remain in a sideways market.
  • Monthly inflections:
    • Credit (55% of macro outlook): Negative (no change)
    • Earnings Growth (30%): Bullish (no change)
    • Momentum/Sentiment (10%): Positive (no change)
    • Valuations (5%): Positive (no change)
  • Timetable Recommendation: 50/50 Split for 5-10 Year Money and 16 Month Dollar Cost Averaging.

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