Stocks Pause But Credit And Cash Flow Trends Signal Underlying Strain
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The S&P 500 finished the day up about 17 basis points — not a major move. From a technical perspective, not much has changed either. The index is essentially consolidating sideways after last week’s decline. There’s still a strong possibility we fill the gaps down to 6,750. For now, the market has just been churning, and it looks like we could be setting up for another leg lower in the coming days.
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Today, we also saw credit spreads on the CDX High-Yield Index widen, which is noteworthy because stocks and credit spreads generally tend to move in the same direction. Typically, the comparison is made by looking at the S&P 500’s earnings yield relative to the high-yield credit spread.
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META fell again today. Suddenly, Meta’s fundamentals matter, as FCF estimates for the next 12 months continue to decline sharply. It seems pretty clear from the chart that free cash flow for the stock matters a great deal. I guess my question is: if the company is going to generate FCF below its 2021 highs, should the stock be trading below those highs too?
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The same appears to be true for Oracle ORCL, which is expected to see its cash flow turn negative over the next 12 months, and perhaps that is why the 5-year CDS is exploding higher at this point.
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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. ...
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