Although key economic news indicated inflation still poses challenges, corporate performance announcements positively influenced investors’ appetites last week, says Jason Colodne, co-founder of Colbeck Capital Management, an NYC-based private credit asset management organization focused on strategic lending.
Economic Snapshot
With the Federal Reserve’s 2% inflation objective still out of reach, the Federal Open Market Committee announced plans on Wednesday to raise the target range for the federal funds rate to 2.25% to 2.5% — and said it anticipates additional increases will be necessary.
The FOMC noted the unemployment rate is still low, and supply and demand imbalances stemming from the COVID-19 pandemic have continued to occur in tandem with escalated food and energy costs, which has helped elevate inflation.
On Friday, the Bureau of Economic Analysis announced that after two months of relatively steady activity, the Personal Consumption Expenditures price index — which measures the change in consumer-purchased goods and services — increased 1% in June.
Compared to June 2021, the PCE price index is now 6.8% higher. Hefty gas prices contributed to the index’s increase, along with an 11.2% increase in food prices and skyrocketing energy prices that rose 43.5%.
Excluding food and energy, the PCE price index is 4.8% higher than a year ago and up 0.6% from May. The BEA data also showed personal income had increased by 0.6%, in June, and disposable personal income was 0.7% higher.
Recent Market Activity
Another week of corporate earnings releases had a strong effect, with positive reports translating into investor interest in the market.
On Monday, the S&P 500 rose 0.1% — followed by a 1.15% loss on Tuesday. Midweek, the index gained 2.6%, and on Thursday, experienced a 1.2% rise. On Friday, the S&P 500 increased 1.4%, according to initial post-closing results.
The Nasdaq composite index shed 0.4% on the first day of the week, and then lost 1.8% on Tuesday. By Wednesday, however, the Nasdaq was on the mend, climbing 4.1%. The index increased 1.1% on Thursday, and on Friday, rose 1.9%.
The Dow Jones Industrial Average grew 0.3% on Monday, before decreasing 0.71% on Tuesday. On Wednesday, the Dow jumped 1.4%, and on Thursday, gained 1%. By closing time on Friday, the index appeared to have increased by about 1%.
The two-year Treasury yield increased to 32 basis points (bps) higher than the 10-year yield at one point on Wednesday, the day the Federal Reserve announced its latest federal funds rate plans. The yield curve had already hit its lowest point in multiple decades earlier in the day.
In other investment news, shifting credit market dynamics, the result of factors such as geopolitical uncertainty and continued inflation, are affecting credit quality, according to a recent capital markets special report from National Association of Insurance Commissioners — which says corporate credit spreads have been wider this year than in 2021.
While investment-grade spreads were under 100 bps early in 2022, they rose in the initial months of the year, reaching 152 bps after Russia invaded Ukraine in March. In May, NAIC says, they grew to 155 bps, due to equity market instability, which was the widest level since June 2020. As the organization notes in its report summary, high-yield spreads were close to 300 bps in early 2022, hitting 500 in late May — and in June reached 517 bps, their widest level in almost two years.
About Jason Colodne
Jason Colodne is the senior transaction partner at Colbeck Capital Management and oversees all aspects of investment execution and portfolio management. Colodne co-founded Colbeck Capital Management as a managing partner in 2009. Colodne’s investment experience spans over two decades.
About Colbeck Capital Management
Colbeck Capital Management (colbeck.com) is a leading, middle-market private credit manager focused on strategic lending. Colbeck partners with companies during periods of transition, providing creative capital solutions. Colbeck sponsors its portfolio companies through consistent engagement with management teams in areas such as finance, capital markets and growth strategies, distinguishing itself from traditional lenders. The firm was founded in 2009 by Jason Colodne and Jason Beckman; the principals have extensive experience investing through different market cycles at leading institutions, including Goldman Sachs and Morgan Stanley.