Think

Markets: As always, the BDC Reporter – and everyone else – will be keeping an eye on the markets after five weeks of rallying. We’re not yet at the December 3, 2018 level of 2,535 on the Wells Fargo Index which we set last week as a useful target, but have inched closer after the 0.9%  increase last week. That left us at 2,519 (2,496 the week before) and almost fully recovered from the December bloodbath. As we’ve discussed at greater length in the BDC Common Stocks Market Recap progress going forward is going to be harder to come by and other forms of non-investment grade debt are already leveling out. On the other hand, if January 2019 looks anything like February 2016 – the last time we had a sudden pull-back out of a seemingly clear blue sky – the price trend will remain upward with only very modest bumps along the way.  That rally lasted over a year.

We’re back to writing a preview of the week ahead in the BDC sector after a two week holiday break when not much was happening except wild swings in BDC common stock and bond prices, neither of which do we pretend to have any definitive insights as to their short term behavior. With the new year, though, we’re eager to get back to penciling out what we might expect to be reading about in the days ahead, and what the BDC Reporter might need to tackle in greater depth. In our most recent BDC Common Stocks Market Recap we boldly stated to our Premium subscribers that 2019 promises to be “the most important for the BDC sector in the last 10 years”. Let’s see how that goes, starting right away.

Inescapable: We’re going to assume the ups and downs of the major indices – and the corresponding movement in BDC common stock prices – will continue until it doesn’t. Since late August, the turmoil across all asset classes has caused the playbook of BDC fundamentals to be thrown out the window as new low after new low is reached, with a few head fakes along the way. As we write this the Dow Jones index is trading 200 points down in the Monday pre-market, which only means that more of the same is on the cards.  Admittedly, this past week, the BDC sector fared less poorly than the 3 major indices (Dow Jones, NASDAQ and S&P 500), but that could reverse itself this week, whether the broader markets go up or down. All we are sure of is that the BDC sector cannot disentangle itself from whatever direction the markets are headed. Here is the chart showing the price of the UBS Exchange Traded Note with the ticker BDCS – which includes most every BDC player – since August 30, 2018, roughly when the market dramas began, compared to the main indices.