Valens Research US Market Phase Cycle - July 2020
Earnings growth and investment are likely to recover quickly from the recession, due to a need to invest, and management teams' growing confidence and lack of concern about structural issues. Fundamentals should bounce back rapidly, but after the recent rally, equity markets are pricing in a well-executed recovery, capping upsideThe coronavirus pandemic has pushed the world into a short-term recession, but thanks to credit fundamentals, its likely not to be a protracted deep recession or long recovery. Favorable bank, corporate, and consumer credit fundamentals heading into this disruption still point to optimism for a strong recovery
Sentiment indicators have become excessively positive. After the impressive rally since March, investors have become overly reward-focused, and are not prepared for any negative news in the near term. Investors should remain patient as Q2 earnings and negative headlines are offering reason for investors to become more risk-focused. With
valuations capping upside but elevated headline risk, near term market downside may be probable, though the drop is capped by a lack of credit overhangs
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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