Equity markets surged higher last week as earnings season got off to a great start. Several large banks reported strong earnings, which helped push equity markets higher. Goldman Sachs reported that their year-to-date revenue in 2021 is already the highest annual revenue recorded in firm history, and there is still a quarter of the year left. The S&P 500 (a proxy for large-cap US stocks) was up 1.8% for the week and the MSCI ACWI index (a proxy for global large-cap stocks) jumped 2.2%.
An important footnote to the strong bank earnings reports last week was the broad agreement by bank leadership that inflation, and wage inflation in particular, remains a concern. Goldman Sachs CEO David Solomon commented, “there’s real wage inflation across all aspects of the economy right now”.
As one can see below, the US Consumer Price Index, a commonly used gauge of inflation, has risen to levels not seen in more than a decade. The Federal Reserve’s stance that inflation will be short-lived is being called into question more often recently, especially in areas like wage inflation.
Prices & Interest Rates
|Representative Index||Current||Year-End 2020|
|Crude Oil (US WTI)||$82.00||$48.52|
|2 Year Treasury||0.41%||0.13%|
|10 Year Treasury||1.59%||0.93%|
|30 Year Treasury||2.05%||1.65%|
|Source: Morningstar, YCharts, and US Treasury as of October 16, 2021|
Asset Class Returns
|Category||Representative Index||YTD 2021||Full Year 2020|
|Global Equity||MSCI All-Country World||14.8%||16.3%|
|Global Equity||MSCI All-Country World ESG Leaders||16.4%||16.0%|
|US Large Cap Equity||S&P 500||20.4%||18.4%|
|US Large Cap Equity||Dow Jones Industrial Average||17.0%||9.7%|
|US Small Cap Equity||Russell 2000||15.6%||20.0%|
|Foreign Developed Equity||MSCI EAFE||10.4%||7.8%|
|Emerging Market Equity||MSCI Emerging Markets||1.2%||18.3%|
|US Fixed Income||Bloomberg Barclays Municipal Bond||0.7%||5.2%|
|US Fixed Income||Bloomberg Barclays US Agg Bond||-1.7%||7.5%|
|Global Fixed Income||Bloomberg Barclays Global Agg. Bond||-4.2%||9.2%|
|Source: YCharts as of October 16, 2021|