Valens Research US Market Phase Cycle - February 2020
Fundamental and management sentiment data point to accelerating earnings growth, at the same time that credit lending standards are starting to flash signs of tightening. This is a classic set-up for the beginning of the late stage of a bull market, where growth takes over, driving a market higher. A set up like early 1999. Signs of strong 2020 earnings growth and growing management confidence on this issue point to continued reason for fundamental accelerationCredit lending standards point to early reasons for monitoring credit, as does the recent re-inversion of the yield curve even after the Fed's lowering of rates in late 2019. However, these are often 18-month to 2-year leading indicators, and there are still no signals of an impending credit crisis. Low cost to borrow, favorable credit fundamentals, and a recent wave of refinancing gives room for corporate growth. A low-to-no credit risk environment suggests limited risk to US equities in 2020
Excessively positive investor sentiment had created elevated market risk in mid-January. After the pullback in late January the sentiment overhang for the market appears to have been removed
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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