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Jason Colodne of Colbeck Capital – June Market Rewind

New economic data didn’t seem to reassure investors that inflation was trending downward — a sentiment that stock market activity reflected by the end of the week, says Jason Colodne, co-founder of Colbeck Capital Management, an NYC-based private equity asset management organization focused on strategic lending.

Economic Snapshot

The consumer price index for all urban consumers (CPI-U) rose 1% in May, following a 0.3% increase in April, according to the latest Bureau of Labor Statistics data, which was released on Friday of last week.

Shelter, gasoline, and food were the largest contributors to the index’s increase in May. The energy index, which had declined in April, rose 3.9% last month, and the gas index was up 4.1%. In the past year, the CPI-U index has risen 8.6%.

The index that measures all items except for food and energy also grew 0.6% in May, the same increase it experienced in April, due in part to higher shelter, airline fares, and vehicle costs. That index is now 6% higher than a year ago.

Energy costs have risen 34.6% since 2021, the largest 12-month increase in that area since 2005. The food index, too, has experienced its most significant escalation in years, rising 10.1% from May 2021 to May 2022, its biggest increase since March 1981.

As higher prices continue to put pressure on Americans’ purchasing power, consumer credit increased at an annualized rate of 10.1% in April, according to the latest Federal Reserve data that was also released last week.

Revolving credit — primarily composed of credit card balances — increased at an annualized rate of 19.6% in April. Nonrevolving credit, which includes vehicle and other loans, grew at an annual rate of 7.1%.

Recent Market Activity

Although all three indexes started out strong last week, by Friday, as new information about continued inflation and other economic pressures circulated, investing activity was notably less vigorous.

The S&P 500 rose 0.3% on Monday of last week, followed by a 0.95% increase on Tuesday. Midweek, though, the index declined 1.08%, and on Thursday, fell 2.38%. On Friday, the S&P continued to slide downward, dropping more than 2.5%, according to initial market results.

The Nasdaq composite index grew 0.4% on Monday and 0.94% on Tuesday; it then reversed course on Wednesday with a 0.73% decline. On Thursday, the Nasdaq again declined, sliding 2.75%, and on the last day of the week it appeared to have fallen roughly 3% by the market’s close.

On Monday, the Dow Jones Industrial Average was up approximately 0.1%; the index rose 0.8% on Tuesday, but by closing time Wednesday had lost 0.81%. On Thursday, it shed 1.94%, and on Friday declined more than 2%.

Inflation data released Friday was widely credited with influencing robust U.S. Treasury yield activity at the end of the week; the benchmark 10-year U.S. Treasury yield increased to about 3.157%, and the 2-year rate zoomed to its highest level since 2008 — 3.065% — on Friday.

In other investment news, U.S. CLOs showed some minor signs of weakening in May, according to a new report. Generally, though, defaults remained low. Consumer product and health care provider issuers were the primary recipients of negative rating actions during the month, according to Fitch Ratings, which issued the findings.

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