Valens Market Phase Cycle Monitor & Corporate Credit Macro View - November 2018
Tell me if you've heard this before:“Any time the market falls 6%+ in 2 days, investors justifiably ask whether something has changed that should impact their investment thesis. This is when a consistent framework like the Market Phase Cycle is most valuable.â€
We wrote that 1 month ago, and if we replace 6% with 3.5%, we would be in today's situation as we approach Thanksgiving. It is rare that a major market sell off does not have a retest of the lows. We are in the midst of that retest.
It is times like this that investors most struggle to look to the data as opposed to headlines. It is also times like this that looking at the data can pay the biggest dividends for investors.
None of the key indicators we monitor in the Market Phase Cycle have turned more negative in the past month.
Investor sentiment has again reached oversold levels – pointing to potential capitulation
UAFRS earnings growth and ROA' remains very healthy, and market valuations are not pricing in that strong earnings growth. The market is undervalued and fundamentals are still trending positively
Corporate credit fundamentals remain healthy, not providing a catalyst for a deeper sell-off
All the datapoints we highlighted a month ago hold true, and should give investors confidence that as Santa Claus rolls through NYC at the end of the Macy's Day Parade, he is likely to bring a more positive market environment with him.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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