After officially wrapping up 12 months of generally solid market activity, much of the first week of January was a less-than-encouraging start to a new investing year, says Jason Colodne, co-founder of Colbeck Capital Management, an NYC-based private equity asset management organization focused on strategic lending. Here’s a look at some of last week’s highlights.
On Friday, Jan. 7, the Bureau of Labor Statistics (BLS) released its latest jobs data, revealing employment and unemployment findings from December. The BLS’ findings indicated employment rose by 199,000 during the month, and the unemployment rate decreased to 3.9%, edging closer to its pre-pandemic 3.5% level.
The number of unemployed persons — which declined by 483,000 to 6.3 million last month — is also now closer to the pre-pandemic amount of unemployed workers, which in February 2020 totaled 5.7 million. Workers’ average hourly earnings also increased in December to $31.31 for private nonfarm payrolls, and $26.61 for private-sector production and nonsupervisory employees. Overall, U.S. workers’ average hourly earnings have shown a 4.7% increase in the past 12 months.
Although December’s BLS survey results were generally positive, the employment report spurred some concern because the job growth increase fell considerably short of the predicted amount, according to Economic Policy Institute analysts. The lower-than-expected results presumably influenced at least some of the volatility the stock market had experienced by midday Friday.
Information the Federal Open Market Committee (FOMC) has shared in the past few weeks also most likely affected recent stock market activity.
A statement released following its mid-December meeting indicated the FOMC — which in November announced it was planning to begin pulling back from Treasury- and mortgage-backed securities purchasing — intended to speed up its plans to reduce securities-related asset purchases. The first increase in the target range for the federal funds rate was also moved up from the first quarter of 2023 to June 2022.
Last week, on Jan. 5, the FOMC released the more detailed minutes from its Dec. 14 and 15, 2021, meeting — which indicated policymakers had expressed concerns about inflationary pressures having increased in recent months.
The FOMC also noted at the meeting that inflation risk, along with continued uncertainty about the pandemic’s ongoing impact, seemingly has had an effect on the investment climate.
Recent Market Activity
Stocks’ final week of 2021, extending from Dec. 27 to Dec. 31, was generally positive, with the S&P 500 and the Dow Jones Industrial Average showing gains of roughly 1% after reaching new highs earlier that week.
Faced with the onset of new COVID-19 variants, political discord and other challenges throughout 2021, market activity was, at times, equally unpredictable and robust this past year — yet eventually ended on a positive note. The Nasdaq Composite, for instance, had a total return of 22%, and the Nasdaq 100 posted a 27.5% return, according to Nasdaq findings.
In 2021, the Dow gained 18.7%, and the S&P 500, after reaching numerous highs, rose nearly 27% — ending up 26.9% higher — over the year, according to S&P Dow Jones Indices data.
An analysis conducted by the Securities Industry and Financial Markets Association (SIFMA) found, when measured in terms of SPX, virtually all sectors experienced a strong 2021, producing annual returns from the mid-teens to nearly 50%.
Market performance during the first week of January 2022, however, was more mixed. Excluding Friday’s closing results, the market was experiencing declines by the latter portion of the week.
On Thursday, the Nasdaq index dropped, marking its third straight day of declines. The S&P 500 and Dow also had fallen by the end of Thursday. The Dow had declined for the previous two days, and the S&P had been shifting lower all week.
The 10-year Treasury yield — a factor that can influence mortgage rates, which rose to their highest level since May 2020 last week — was on the upswing all week. On Thursday — the day the Fed’s meeting minutes were released — the 10-year Treasury yield increased to 1.75%.
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.