The new fiscal year beginning July 1st will mark Commonfund’s fifty-year anniversary – and what a memorable year it has been. As we write this letter, we are hopeful that the new year will bring positive developments and that progress towards getting “back to normal” will continue both in the U.S. and around the world. Rather than rehashing all the challenges of the past year, this letter will look forward as we anticipate where the markets will go coming out of what was decidedly an unusual year.
Things are Looking (Mostly) Up
As we close out the fiscal year ending June 30, the markets overall appear healthy. Equity indices, domestic and global, are near all-time highs, corporate and high-yield spreads are approaching historic lows, and after a bout of indigestion in the first quarter of 2021, the risk-free interest rate markets have held steady. Corporate earnings are accelerating and will likely exceed the lofty levels of the first quarter at mid-year. While fiscal policy remains expansionary, as repairing America's infrastructure remains a goal of both parties, ideological disagreements remain in terms of content, size, and funding. Domestic economic data for the first six months of 2021 has maintained a positive trend, confirmed by first quarter U.S. GDP at 6.4 percent but, looking to the future, the economic “lift” may get heavier as the task of recovery transitions to generating consistent future growth while avoiding the negative short-term consequences of higher debt, deficits, and inflation.