First Quarter 2021
can be used for stock repurchases, dividend increases, or capital expenditures to fulfill demand as the economy recovers. As a comparison, cash and equivalents was $830 billion in 2019.
The U.S. economy has been primed and a recovery is near, so what is the worry? Well, in one word - inflation. With all the previous stimulus and forward-looking stimulus, bond investors are starting to bid up 10-year yields in anticipation of inflation. The 10-year yield was under 1% at the beginning of the year and is currently sitting near 1.7%. This has spooked some investors that rapid inflation is on the way; however, the current measure of inflation is sitting under the Federal Reserve’s target of 2%. Further complicating the matter is how we have historically measured inflation. Inflation is measured by store visits based on a basket of goods and services. There has been discussion on whether the pandemic has permanently changed consumer behavior due to the rapid rise in e-commerce transactions, which are more difficult to measure prices. While we believe there could be pockets of inflation due to supply bottlenecks and pent-up demand, overall inflation should be kept in check by aging demographics, technology advancements and automation.
Our focus list performed well during the quarter, 8.97% versus S&P 500 of 6.17%, with positive contributions from Goldman Sachs and American Express. Both posted strong double-digit returns. Goldman Sachs benefitted from a near record pipeline of investment deals, strong fixed income and equity trading, and affirmed financial outlook targets.
Chief Investment Officer