- Bill passed last night to end US Government shutdown
- US stock markets closed at record highs
- Slowing cash-flows a warning sign going forward?
The latest US government shutdown has ended after President Trump signed a bill on Monday night to reinstate funds until the 8th February. The latest political impasse had no tangible impact on the stock markets but the longer it went the more the threat would’ve grown. As it transpired the US500 rallied early on yesterday, before the bill was passed, and then rallied some more following the news to end the day at an all-time closing high of 2836.
The US500 has made record closing and intra-day highs in the past 24 hours as the US Government shutdown has ended. Source: xStation
The market dropped ever so slightly after re-opening following the weekend break and since then it’s been pretty much 1-way traffic with price breaking higher once more and making another all-time high early this morning at 2843.
The trend is clearly higher for US stocks and whilst momentum indicators such as the RSI or stochastics and valuation metrics such as the CAPE ratio get ever more stretched there is very little by the way of reversal signals to go off. An additional warning sign may be found in looking at company cash flows, which have been in a steady decline in net operating terms for several years now.
Cash flows for US stocks (excluding financial and oil companies) has been steadily declining for the past 4 years. Source: Bloomberg
The graphic above excludes financials and oil companies because they have both benefited from exogenous factors in recent years (Financials from rising interest rates and oil companies buy the resurgence in the price of crude.)
Taken on its own this may not appear to be too big a problem but in the context of the aforementioned factors it adds to the list of potential warning signs. Furthermore the slump in the dollar and the flattening of the yield curve, could also be seen to pose additional reasons for concern.
Having said all that, the technical picture remains extremely strong and for the time being the path of least resistance seems to be higher. However, should there be any reversal signs in the coming days or weeks they may present attractive opportunities to go short and look for a pullback.
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