In the past week, continued inflation concerns and mounting tension between Russia and Ukraine cast a shadow on the investment climate — particularly as the week advanced, says Jason Colodne, co-founder of Colbeck Capital Management, an NYC-based private equity asset management organization focused on strategic lending.
Here are some of the news highlights from the past several days.
Economic Snapshot
Following the prior week’s Federal Reserve announcement that consumer credit had increased 5.9% in 2021, the latest publication of the quarterly household debt and credit report from the Federal Reserve Bank of New York’s Center for Microeconomic Data suggested total household debt had increased by $333 billion to $15.58 trillion, a 2.2% rise, in the fourth quarter of 2021.
The debt and credit report is based on information from the New York Fed’s Consumer Credit Panel, a nationally representative sample drawn from anonymized Equifax credit data.
The Federal Open Market Committee also released the minutes from its January meeting last week, which offered additional insight into its approach toward potential rate increases.
Officials noted that in addition to continued supply chain and labor supply issues, considerable asset valuation pressures are still in effect, with the forward price-to-earnings ratio for the S&P 500 index at the higher end of its historical distribution, and high-yield corporate bond spreads and the excess premium for leveraged loans hovering at low levels.
FOMC members said they expect inflation to ease in 2022 — but are willing to raise interest rates if necessary. The committee plans to make any related decisions on a per-meeting basis, depending on the current economic conditions at the time.
Among other key economic data, the Bureau of Labor Services’ producer price index — which measures the average change over time in prices for domestically produced goods, services, and construction from the seller’s perspective — grew 1% in January. In December, the index had increased 0.4%, and in November had also grown, escalating 0.9%.
Recent Market Activity
Investment interest was volatile at times last week as concerns about Russia’s ongoing presence near Ukraine’s border intensified, with stock market gains lessening as the days passed.
The S&P 500 saw a 0.4% decline on Monday; however, it experienced a 1.6% increase on Tuesday, and despite declines earlier in the day on Wednesday, ultimately was up 0.1%. The latter portion of the week was less rosy for the index, however. The S&P 500 declined again on Thursday, shedding 2.1%, and ended the week with a 0.7% drop.
After losing more than 2% at the start of the week, the Nasdaq composite index rose 2.5% on Tuesday. Its performance on Wednesday was less celebratory, finishing the day with a 0.1% decline. On Friday, the Nasdaq fell 1.2%, after dropping 2.9% on Thursday.
The Dow Jones Industrial Average fell 1.4% on Monday, but finally — after trending downward at the end of last week — rose 1.2% on Tuesday. On Wednesday, though, the index saw a 0.2% decline; the Dow also fell 1.8% Thursday. By Friday’s close, like the S&P 500, the Dow had declined 0.7%.
In other investing news, U.S. Treasury yields increased on Monday, and the yield on the benchmark 10-year Treasury note gained 4 basis points on Tuesday, escalating 2.04% near the end of the day. The 30-year Treasury bond yield increased by 2.36% the same day.
On Friday, U.S. Treasury yields fell, with the yield on the benchmark 10-year Treasury note 1.98% lower just after 4 p.m. ET, and the yield on the 30-year Treasury bond sinking 2.236%.
Corporate default rate-related analysis this month has painted a mixed image. Last week, credit rating and research provider Moody’s said corporate default rates had increased in January, following a yearlong succession of declines. Five companies defaulted last month.
Moody’s forecast as of two weeks ago, though, for default activity in 2022, suggested the global speculative-grade trailing 12-month default rate could fall below the historical long-term average for the rate. The coming months should reveal more insight into its ultimate direction.
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. 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.
