The past week involved mixed news about the economy and the close of the first business quarter, revealing somewhat lackluster stock performance so far in 2022 and continued inflation concerns, says Jason Colodne, co-founder of Colbeck Capital Management, an NYC-based private equity asset management organization focused on strategic lending.
Economic Snapshot
Housing market activity appears to be less frantic than during last year’s demand boom, according to the latest National Association of Realtors data, which indicates pending home sales declined in February, the fourth consecutive month of reduced transactions.
The association’s Pending Home Sales Index, which is based on contract signings, decreased 4.1% to 104.9 in February. Year over year, transactions are down 5.4%.
In a statement, NAR chief economist Lawrence Yun said buyer demand remains high and attributed the diminished transactions to the low number of homes for sale. Yun also predicted mortgage rates would be approximately 4.5% to 5% for the remainder of 2022.
On Thursday, the Bureau of Economic Analysis published the latest Personal Consumption Expenditures price index — which reflects changes in the prices of goods and services purchased by consumers in the U.S. — offering a look at inflation across a wide range of expenses.
The index showed a 0.2% increase in February. Year over year, the index is up 5.8%. Excluding food and energy, the PCE price index rose 5.4%, compared to December 2021. Personal income in the U.S. grew by 0.5% during the month, and personal consumption expenditures (PCE) increased by 0.2%.
The Bureau of Labor Statistics’ jobs report included positive labor market news — including total nonfarm payroll employment increasing by 431,000 in March.
The unemployment rate also declined during the month to 3.6% — from February’s 3.8% — with noteworthy gains in the leisure and hospitality, professional and business services, retail trade, and manufacturing sectors.
Recent Market Activity
Despite somewhat uneven market performance this week, two of the indexes — the Nasdaq and Dow Jones — showed gains for the month. All three, however, experienced a decline this quarter.
On Monday, the S&P 500 rose 0.7%; it also increased on Tuesday by 1.2%. Wednesday, however, the index slid 0.6%, and ended the day — and quarter — lower on Thursday, shedding 1.6% for the day. The S&P ended the week on a more positive note, though, with what looked to be a 0.3% increase shortly after the market closed.
The Nasdaq composite index started the week out with a 1.3% gain. On Tuesday, it increased 1.8%, but on Wednesday, it declined 1.2%. Thursday marked a 1.5% decrease, and on Friday, the index seemed to have risen roughly 0.3%.
The Dow Jones Industrial Average increased nearly 0.3% on Monday, and on Tuesday, rose by approximately 0.97%. Midweek, the index shed 0.2% on Wednesday, followed by a 1.6% loss on Thursday. At the close of the week, the Dow appeared to have risen 0.4% higher.
For the first time since 2019, the two-year and benchmark 10-year Treasury note yields inverted on Thursday, according to CNBC, which noted the yields had actually inverted briefly two days before on Tuesday. This was for a time period some economists may not feel was significant enough to indicate a recession could occur in the following one to two years, which a yield inversion can denote.
In other investment news, although investors may have initially thought the Federal Reserve’s impending rate increase would intensify interest in floating-rate debt, leveraged loan prices declined throughout much of March, as did demand to purchase the loans.
Collateralized debt obligation funding costs for bundled leveraged loans have also risen, particularly for higher-rated securities, according to Bloomberg, making deals that involve CDOs potentially less attractive.
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.
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