Valens Market Phase Cycle Monitor – September 2022 – The Market Dropped, That Doesn’t Mean It’ll Continue To

September 22, 2022

  • Credit and Profit Overhangs Remain, Without Pointing to an Imminent Recession. 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 more negative. This may help reduce 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 (upgrade)
    • Valuations (5%): Positive (upgrade)
    • Timetable Recommendation: 50/50 Split for 5-10 Year Money and 16 Month Dollar Cost Averaging.

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