Valens Research US Market Phase Cycle - November 2019
The last few Market Phase Cycle reports read like a mid-cycle Bull report for a sideways market digesting earnings growth. However, fundamental and management sentiment data coming out of Q3 earnings season 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. Signs of strong 2020 earnings growth and growing management confidence on this issue point to continued reason for fundamental accelerationWhile credit lending standards point to early reasons for monitoring credit, 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 corporates. A low-to-no credit risk environment suggests limited risk to US equities in 2019 and into 2020
Based on the current macro context, equity valuations are at reasonable levels contrary to as-reported metrics. With valuations not extended and earnings growth potentially accelerating, longer-term equity market upside continues to be warranted
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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