The S&P 500, a broad measure of large publicly-traded US companies, advanced to another all-time high last week as the Democratic Party gained control of the Senate via the run-off elections in Georgia. The Democrats will control both houses of Congress when President-elect Biden is sworn in, which makes the prospect of significant additional fiscal stimulus more likely, both in the form of direct cash payments to Americans as well as infrastructure spending.
Equity markets advanced on the news, but US Treasuries declined as bond investors likely anticipate the potential for higher future interest rates and inflation from the additional fiscal spending. While the current environment is certainly unique given the backdrop of the global pandemic as well as unprecedented fiscal and monetary stimulus, the chart below provides historical context for how various assets have performed under differing inflation regimes.
Source: J.P. Morgan Asset Management. *High or low inflation distinction is relative to median CPI-U inflation for the period 1988 to 2020 (33 years), which was 2.5% y/y. Rising or falling inflation distinction is relative to previous year CPI-U inflation rate. Indices: Bonds – Bloomberg Barclays U.S. Aggregate; Cash – Bloomberg Barclays 1-3 Month T-Bill index since its inception in 1992 and 3-month T-Bill rates prior to that; U.S. high yield – Bloomberg Barclays US Aggregate Credit (corporate high yield); Equities – S&P 500; Growth – Russell 1000 Growth; Value – Russell 1000 Growth; Small Cap – Russell 2000; EM equity – MSCI Emerging Markets (USD); REITs – FTSE Nareit / All Equity REITs; Commodities – Bloomberg Commodity Index since its inception in 1992 and S&P GSCI prior to that; Gold – NYM $/ozt continuous future closing price. For illustrative purposes only. Past performance is not indicative of comparable future returns. Returns are based on calendar year performance and are total return unless otherwise specified.
Guide to the Markets – U.S. Data are as January 7, 2021.
Category |
Representative Index |
YTD 2020 |
Full Year 2020 |
Global Equity |
MSCI All-Country |
2.7% |
16.3% |
US Large Cap Equity |
S&P 500 |
1.9% |
18.4% |
US Small Cap Equity |
Russell 2000 |
5.9% |
20.0% |
Foreign Developed Equity |
MSCI EAFE |
3.2% |
7.8% |
Emerging Market Equity |
MSCI Emerging Markets |
4.8% |
18.3% |
US High Yield Fixed Income |
ICE BofAML High Yield |
0.2% |
6.2% |
US Fixed Income |
Barclays Aggregate Bond |
-0.9% |
7.5% |
Cash Equivalents |
ICE BofAML 0-3 Mo Deposit |
0.0% |
0.5% |
Source: Morningstar
As of January 8, 2021
Representative Index |
Current |
Year-End 2020 |
S&P 500 |
3,825 |
3,749 |
Dow Jones Industrial Avg. |
30,993 |
30,497 |
NASDAQ |
13,097 |
12,886 |
Crude Oil (US WTI) |
$52.24 |
$48.52 |
Gold |
$1,834 |
$1,893 |
US Dollar |
90.10 |
89.94 |
2 Year Treasury |
0.14% |
0.13% |
10 Year Treasury |
1.13% |
0.93% |
30 Year Treasury |
1.87% |
1.65% |
Source: Bloomberg, US Treasury
As of January 8, 2021