The market reacted strongly to inflation-related information released during the week — which showed continued cost increases last month, says Jason Colodne, co-founder of Colbeck Capital Management, an NYC-based private equity asset management organization focused on strategic lending.
Economic Snapshot
Unemployment remains low, with a total of 5.9 million people out of work last month — essentially the same amount as in May — and a 372,000 total nonfarm payroll employment increase, according to the most recent data released by U.S. Bureau of Labor Statistics.
The unemployment rate remained at 3.6% in June. As the BLS noted, both the rate and number of unemployed individuals are now similar to the amount in February 2020, the month prior to the COVID-19 pandemic’s impact.
BLS also released new consumer price index and producer price index results on Wednesday and Thursday, respectively, which revealed further cost increases.
The consumer price index for all urban consumers (CPI-U) grew 1.3% in June after rising 1% in May. Year over year, the all-items index is up 9.1% before seasonal adjustment, its most significant escalation since November 1981.
The indexes for gasoline, shelter and food contributed significantly to the June increase. The gasoline index was 11.2% higher. The energy index increased 7.5%, comprising nearly half of the CPI-U rise, and is up 41.6% from last year’s level — its largest 12-month increase since April 1980. The index for all items, with the exception of food and energy, grew 0.7%.
In June, the producer price index for final demand increased 1.1%. Three-fourths of the rise in the index resulted from a 2.4% increase in prices for final demand goods.
Final demand prices, on an unadjusted basis, have escalated 11.3% since last year — the largest increase on record since March 2022, when prices rose 11.6%.
Recent Market Activity
Friday turned out to be a bright spot for all three indexes, offering modest increases across the board after they experienced a series of declines during most of the week.
The S&P 500 slipped 1.2% on Monday, followed by a 0.92% drop on Tuesday. The index fell again on Wednesday, shedding 0.5%, and then continued its decline with a 0.3% de-escalation on Thursday. On Friday, however, the S&P sprang back with a 1.9% rise, according to initial post-closing results.
The Nasdaq composite index also started the week off with a decline, plummeting 2.3% on Monday. On Tuesday, the index fell 0.95%, and on Wednesday, shed 0.2%. On Thursday, though, the Nasdaq rose 0.03%; on Friday, it managed to add 1.8%.
The Dow Jones Industrial Average dropped 0.5% on Monday, then swiftly sank again on Tuesday, losing 0.62%. On Wednesday, the Dow slipped 0.7%, followed by a 0.46% decline on Thursday. But by Friday, the Dow, too, was on the rise, showing a 1.8% increase.
The yield on the benchmark 10-year Treasury note had a rocky start to the week with an 11-basis-point plunge, falling to 2.99% during the day. The 2- and 30-year yields also declined on Monday.
Midweek, following the consumer price index release, the 2- and 10-year yields’ inversion reached its most notable point since 2000, prompting further speculation about a potential recession.
In other investment news, the federal banking system in the U.S. is facing a number of challenges, according to the most recent semiannual risk report from the Office of the Comptroller of the Currency (OCC), including operational, interest rate, and credit risks.
In addition to inflation pressure, banks are experiencing some of the same issues as businesses across the country, including retaining and hiring qualified employees. Banks also face some areas of weakness due to the continued effect of the pandemic and geopolitical events such as the war in Ukraine, OCC says, along with ongoing cybersecurity risks.
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. It 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.
