Week in Review: May 21, 2021

US markets ended the week little changed as investors focused on the prospects of higher inflation, first quarter earnings reports, a sharp decline in crypto currencies, and the release of the Fed’s April FOMC meeting minutes. Despite the ongoing debate about whether or not recent increases in inflation will prove to be structural or transitory, fixed income markets appeared to take a wait-and-see approach as evidenced by the 10-Year Treasury yield which finished the week down just 1 basis point from a week ago.

The release of the Fed’s April FOMC meeting minutes indicated inflation was a central topic. While a number of factors behind the rise in inflation were discussed, including labor shortages and supply chain bottlenecks, overall, the Fed continues to believe that the current rise in inflation will prove to be transitory. Interestingly, the minutes noted that “a number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.” That came as a mild surprise, as it was generally expected that the Fed would not broach the possibility of tapering until later in the year at the earliest.

As of Friday, 95% of S&P 500 companies had reported 1Q21 earnings. According to industry group Factset, thus far, 86% of companies have beaten their consensus earnings estimate, while 76% have exceeded their revenue estimate. Aggregate earnings growth for the quarter is expected be 52%.