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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.
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.
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?
The same appears to be true for Oracle, 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.
-Mike
Glossary by ChatGPT
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Basis Points (bps): A unit equal to one hundredth of a percentage point, used to measure changes in interest rates or other financial percentages.
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CDS (Credit Default Swap): A financial contract that provides protection against the default of a borrower, effectively acting as insurance on credit risk.
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CDX High-Yield Index: A benchmark index tracking credit default swaps on a basket of high-yield (junk-rated) corporate bonds.
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Earnings Yield: The inverse of the price-to-earnings ratio, showing how much a company earns per share relative to its stock price.
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Free Cash Flow (FCF): The cash generated by a company after accounting for operating expenses and capital expenditures.
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Gap Fill: A technical analysis concept referring to prices retracing a prior “gap” on a chart created by a sharp move up or down.
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Spread Widening: An increase in the yield difference between riskier and safer debt, often signaling rising credit risk.
Disclosure
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. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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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. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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