Valens Research US Market Phase Cycle - September 2019
Recent signals around corporate investmentgrowth and management concerns about cost pressures from trade and macro overhangs point to slower earnings growth going forward. Also, while sentiment indicators have come off elevated levels in late July, they never reached capitulatory levels that would imply a floor in the recent market correction. Weaker earnings growth and neutral technical signals point to a likely range-bound market in the near-term, until earnings can re-engage.While headlines abound about recession, recessions are not caused by weak earnings growth, they are caused by credit destruction. There are no signals of this coming. A low-to-no credit risk environment suggests limited risk to US equities in 2019.
Based on the current macro context, equity valuations are at reasonable to low levels. While as-reported metrics may imply valuations are expensive, current market expectations for earnings and growth are low. With the market modestly undervalued based on fundamentals, longer-term equity market upside is 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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