Markets and Economy Broaden but Remain in a Delicate Balance

The bifurcated and narrow economy that existed over much of the past few years in the aftermath of the Federal Reserve tightening cycle—which took short-term interest rates from 0.25 percent in March 2022 up to 5.50 percent in July 2023—has given way to a broadening economy as we have pushed through 2026. While the initial phase of the U.S.-Iran conflict created market “questions” about the durability of that economic broadening, as we have pushed through the summer months, the reality remains that the U.S. economy and labor markets have stayed resilient in 2026.

We believe that what shows up in the economy also reveals itself in markets. Much like the economy, U.S. and global equity markets have experienced a broader advance in 2026. While the Standard & Poor’s 500 Index (S&P 500) has performed admirably in recent years, the reality remains that a globally diversified portfolio of equities, commodities, and Real Estate Investment Trusts (REITs) has now bested its return since the end of 2024. While 2025 saw international developed and emerging markets do the heavy lifting, 2026 has seen U.S. markets broaden, with Small- and Mid-Cap stocks as well as REITs joining the outperformance, while oil and inflation-sensitive commodities have provided the highest returns.

While this is positive news, the reality remains that both the economy and equity markets remain in a delicate balance. From rising debt levels to tariffs and geopolitics on the economic front to concentration, valuation, and speculation on the market front—not to mention the unanswered questions about the overall impact and outcomes resulting from the artificial intelligence (AI) buildout and boom on both the economy and markets—uncertainty remains elevated. As the famed baseball coach Lawrence Peter “Yogi” Berra once said, “It’s tough to make predictions, especially about the future”—and while that always seems to ring true, the reality remains that today’s environment is incredibly uncertain and seemingly changing daily. The good news is that we believe the tried-and-true tenets of our investment philosophy continue to provide a solid foundation for navigating this environment: Focus on the long term with a keen eye toward diversification rather than concentrating in any one stock, sector, or theme.

The Fed’s rate hikes had a simple goal: to slow economic growth, or demand, to allow supply to catch up and, as a result, bring inflation lower. As in the past, those hikes did slow parts of the U.S. economy, notably the most interest-rate-sensitive segments. What was unique this time is that the impact of higher rates did not permeate the entirety of the U.S. economy and push it into contraction as they often have historically. While we didn’t get a recession, we did get heavy bifurcation. The reality is that while manufacturing, housing, small businesses, and lower- to middle-income consumers weakened under the burden of higher rates, the economy kept pushing forward on the backs of non-interest-rate-sensitive higher-income consumers (whose debt was largely in fixed-rate mortgages), continued heightened fiscal stimulus, and the unrelenting and ever-increasing spend on the win-at-all-cost AI boom that was initially being financed out of the free cash flow of a narrow group of companies.

Much as we forecasted, this has shifted in 2026 given these realities:

1. The Fed cut rates by 1 percent from September through December 2024 and by an additional 0.75 percent from September through December 2025. This brought the fed funds rate down from 5.50 percent to 3.75 percent and provided stimulus to the U.S. economy in 2026.
2. Fiscal policymakers have continued to run large deficits and provide stimulus to the U.S. economy, most recently through the One Big Beautiful Bill Act (OBBBA).
3. The AI boom continues to snake its way through the entirety of the U.S. economy, from both the perspective of the companies and industries needed to bring it to life and the increasing number of companies that are now using it.

These realities have broadened overall economic growth. Contemplate that the National Federation of Independent Business (NFIB) Small Business Optimism Index has been in an overall uptrend as shorter-term borrowing rates that companies report paying have fallen from 10.10 percent in September 2024, when the Fed first cut rates, to 7.50 percent in the latest survey. Similarly, the net percentage of companies reporting positive earnings fell from -17 percent in March 2022 (first rate hike) all the way down to a historically low -37 percent by August 2024 before beginning its rebound in September (first rate cut) and pushing higher to today’s -19 percent.

Similarly, an index of interest-rate-sensitive manufacturing output put in a high in March 2022 but then pushed 3.90 percent lower before bottoming in October 2024 and has since rebounded to within 0.03 percent of that March high. This looks set to continue as the Institute for Supply Management (ISM) manufacturing new orders index has moved into expansionary territory in each and every month this year, with the July and August reports showing the overall largest level of expansion since May 2022.

Lastly, while the New York Federal Reserve Consumer Credit Panel continues to show heightened flows into serious delinquencies on credit cards, auto loans, and student loans, the reality is “Delinquency rates across most products have held steady over the past two years,” said Joelle Scally, Economic Policy Advisor at the New York Fed. “Still, new delinquencies for auto loans and credit cards remain at elevated levels, a trend we’ll continue to monitor.”

All of these realities have conspired to broaden and stabilize the U.S. labor market. The back halves of both 2024 and 2025 saw a weak and narrow labor market, with the percentage of industries hiring falling consistently below 50 percent. Indeed, nearly all the meager job growth was attributable to the non-cyclical health and social assistance industry. The reality is that the labor market appears to be in balance, with all months seeing above 50 percent of industries hiring, not to mention initial jobless claims remaining historically low.

The implications of likely secular headwinds to monetary and fiscal policy

The post-Great Recession, from 2009 until today, has been marked by a seemingly never-ending expansion of monetary and fiscal policy intervention as policymakers attempted to revive a badly bruised U.S. and global economy. After pushing rates to zero, the Fed repeatedly embarked on large-scale bond purchases that expanded its balance sheet, commonly known as quantitative easing, while also providing forward guidance on its potential future actions. In many ways, both tools were designed to compel investors and economic actors to take risks and pull the stagnant economy higher.

On the other side of the equation, fiscal policymakers, on a bipartisan basis, continued to provide a healthy amount of stimulus to the economy. The result has been a continued increase in U.S. debt held by the public to roughly $32 trillion, or about 100 percent of GDP, the highest level since the end of World War II. The cost of this aggressive monetary and fiscal policy mix appeared minimal for much of the period because the Fed was trying to push inflation up to its 2 percent target while the interest cost on Treasury debt was moving lower, keeping annual interest expenses contained.

Those two realities contributed to an incredibly strong run in equity markets, during which nearly every economic threat, including COVID, proved remarkably short-lived given the large amount of stimulus that was deployed in response to almost every problem. This shaped our outlook during that period. We believed the economy and markets could experience hiccups, but we also believed those disruptions would likely be short-lived because of the sheer amount of stimulus policymakers were willing to throw at any meaningful pullback. Longer-term followers will recognize this discussion from our COVID-era outlooks, when we expressed our optimism that equity markets would snap back quickly as policymakers unleashed an extraordinary amount of stimulus to bridge the economy through the shutdown.

This is where recent fiscal and monetary policy pronouncements may herald a meaningful shift for investors to contemplate. The final weeks of August brought additional discussion about the potential for the U.S. Treasury to intervene in bond markets in an attempt to pull down yields. After Treasury Secretary Scott Bessent initially announced that Treasury would deploy $4 billion to buy longer-term U.S. Treasurys, two senior Treasury officials said Treasury could use its nearly $1 trillion Treasury General Account to help fund longer-term Treasury buybacks, increasing its “firepower” to pull yields lower. While much of the discussion has focused on whether this approach would work, we believe the more important question is why it is being considered.

In addition, rising Treasury debt is now being met with higher interest costs. Consider that the average interest rate on outstanding U.S. Treasury debt is 3.44 percent, up from the recent low of 1.42 percent in January 2022 and the highest level since September 2008, just before the Global Financial Crisis (GFC) ushered in a period of heightened debt growth. This has pushed annual net interest expense on U.S. Treasurys to more than $1 trillion, an amount now larger than what the U.S. spends on defense. It represents 3.1 percent of annual U.S. economic output, placing it in a near dead heat with 1991 as the highest level in data going back to 1940. Complicating the future reality is that the entire U.S. Treasury yield curve now ranges from roughly 3.71 percent to 5.24 percent on the 30-year Treasury. Simply put, each additional dollar of debt now increases U.S. interest costs. This helps explain the administration’s desire for lower yields and the broader effort to create additional demand for Treasurys through stablecoin legislation; it is also helping Japan stabilize the yen through joint currency intervention. Importantly, U.S. participation reduced the risk that Japan would need to sell Treasurys to raise the dollars required to buy yen.

Similarly, new Fed Chair Kevin Warsh has spent much of his recent past highlighting concerns about the Fed’s repeated use of quantitative easing, and he used much of his highly anticipated Jackson Hole speech to sharpen his critique of forward guidance, which he noted was adopted by him and his colleagues during the GFC and was “essential then” but which he now believes has overstayed its welcome. Most notably, he stated that “markets should form their own expectations of output, employment, and inflation and stay sharply attuned to risks.” That is a meaningful shift from the post-GFC framework and one that investors should not dismiss. Quantitative easing and forward guidance were designed, at least in part, to lower perceived risk, encourage investors and economic actors to take more risk, and use stronger asset prices and easier financial conditions to help pull the broader economy higher. Importantly, he discussed not only how forward guidance can limit the Fed’s ability to move—highlighting the slow response to inflation in 2021 as an example—but also what he called a “hall of mirrors” problem. In his view, forward guidance can create blindness and unpreparedness for future events, raising the likelihood of policy errors. As he noted, “The most serious harm is borne by those without financial assets.” Put differently, if the Fed gets inflation wrong, it is not financial high-fliers who bear the greatest burden. It is hardworking Americans who are left to deal with inflation that is too high or jobs that suddenly appear less secure.

This has broad implications for investors. While we remain optimistic about both the U.S. economy and markets over the long term, the reality is that forward equity returns may be lower and economic and market hiccups may last longer than investors have become accustomed to. Put simply, we believe buying dips remains a viable long-term strategy, but the gratification from doing so may be less immediate.

The near-term delicate balance

The biggest nearer-term risks remain the future path of short- and long-term interest rates, which are being influenced by both fiscal and monetary policy as well as the current AI boom. Most notable is the continued stickiness of inflation, which checked in at 3.30 percent on the Fed’s preferred measure, core personal consumption expenditures, for the month of July. While many have wondered whether new Fed Chair Kevin Warsh would act to bring inflation down, his Jackson Hole speech appeared to answer the question resoundingly.

Much as we have noted, the chair pointed to a strengthening economy supported by healthy AI capital investment, which has remained resilient despite repeated shocks, alongside a stable labor market that appears to be meeting the Fed’s mandate of maximum employment. That backdrop matters because Warsh made clear that the Fed remains committed to meeting its other mandate of returning inflation to target. While many have wondered which inflation measure the Fed may emphasize, he stated, “The Fed’s price-stability objective of 2 percent, as measured by the personal consumption expenditures (PCE) price index, is a firm, fixed target.”

He also noted, “While this summer’s PCE and Consumer Price Index (CPI) readings were better than expected, they do not tell me that underlying trends have meaningfully improved,” and he reminded listeners that inflation has been above the Fed’s 2 percent target for 65 straight months. Just as important, Warsh said he would be “hard pressed to describe broad financial conditions as restrictive.” Taken together, above-target inflation, resilient growth, and financial conditions that are not clearly restrictive help explain why markets increased the odds of additional tightening and higher short-term rates. We have consistently forecasted that the last mile to getting inflation to 2 percent would be the most difficult, something we believe will require a rate hike in the future.

It is also worth noting that longer-term rates are likely being impacted by the aforementioned AI boom. The significant capital required to fund AI-related investment is increasingly being financed through debt issuance, forcing investors to absorb both a growing supply of corporate debt and ever-larger amounts of U.S. Treasury issuance. After hitting 3.94 percent on February 27, 2026, the 10-year Treasury yield has continued to climb, reaching 4.79 percent, its highest level since January 2025, while the 30-year Treasury yield rose to its highest level since June 2007.

Rising near-term economic growth questions

These two realities—rising rates and inflation—are once again threatening to slow overall U.S. demand. Most importantly, the largest part of the economy, the U.S. consumer, has shown signs of exhaustion over the past few months as real wage growth has ticked negative. Contemplate that average hourly earnings are rising 3.10 percent year over year, while overall prices, as measured by PCE, are up 3.70 percent. While lower taxes from the OBBBA have helped, the reality is that overall real disposable personal income on a year-over-year basis checked in flat in March, fell 1 percent in April and is currently up just 0.50 percent, while the current savings rate has fallen to a historically low 3 percent.

AI capital investment remains strong; however, the source of the capital needed to bring it to life has now shifted from free cash flow to debt and equity issuance given its increased cost. If the Fed is forced to raise rates and tighten financial conditions, that capital will become more expensive and difficult to source. That raises growth risks because, in past periods when the economy wobbled, interest-rate-insensitive AI spending helped lift overall U.S. economic growth.

Nearer-term investment implications

Investor risk is not just about interest rates. It is also about where the value from AI ultimately accrues. Warsh’s comments on AI support the point we have been making for some time: Investors should not become overconcentrated or overconfident in any one stock, sector, or theme simply because AI is real and its benefits are likely to be meaningful. As we have expressed, we believe AI will have far-reaching implications for the U.S. economy, but there are still many unknowns—or, as Warsh stated, “major lines of inquiry.” Most importantly, and consistent with our recent comments, was this passage:

“Among the other yet unknowns is the resulting market structure. It’s not obvious where the returns on capital will land or on what timescale. Early on, how much of the surplus goes to owners of scarce assets, AI labs, chipmakers, energy producers, and cloud providers? Over time, how much of that value accrues to businesses and consumers?”

That uncertainty is central to our point. To date, much of the value has accrued to the companies and industries needed to bring AI to life: the labs, chipmakers, hyperscalers, energy providers, data centers, memory providers, and server companies that make the buildout possible. We do not believe that value chain will remain static. Over time, AI’s benefits should continue to move through the broader economy as more companies adopt the technology and use it to improve productivity, profitability, and competitiveness. That is why we continue to urge diversification rather than concentration. Much like prior innovations, today’s winners may not be tomorrow’s winners, and value will likely continue to shift across the economy and markets as AI moves from buildout to adoption.

Stay focused on the intermediate to long term, stay invested, and remain true to the allocation dictated by your financial plan.

Portfolio positioning

We continue to invest with an emphasis on diversification over concentration, with regard to not only equities and sectors but also themes given the continued heightened levels of uncertainty in both the nearer and intermediate terms. We continue to point to a later-cycle U.S. economy with growing monetary and fiscal policy questions arising from still-sticky inflation, rising interest rates and debt levels, heightened geopolitical and tariff questions, as well as the elevated overall uncertainty resulting from the unknown impacts of the AI buildout.

We believe these realities are best addressed through a diversified portfolio that acknowledges the various paths the U.S. and global economy could take in the coming years. While we continue to believe that inflation remains an issue that needs to be addressed, the continued question is whether the Fed will tighten policy and risk damaging growth prospects or allow inflation to linger. Do we get more details about a new Federal Reserve–Treasury accord, as Chair Kevin Warsh has hinted in the past? Do policymakers choose a path that attempts to inflate debt away as part of their playbook, and does that become a global phenomenon?

This is where we continue to believe that investors need to hedge both tails of the economic and market distributions. We continue to advocate a measured allocation to broad commodity exposure to help hedge the potential inflationary outcome, and we recently increased our allocation to Real Estate Investment Trusts given our belief that the asset class possesses favorable supply-demand characteristics that would likely allow companies to raise prices and rents if inflation pushes higher.

On the other hand, despite the fiscal challenges that are growing, we continue to advocate investing across the fixed income maturity spectrum, as absolute and real yields remain attractive. While many question the value of fixed income, we believe that in the event an economic contraction ensues, fixed income would likely play its traditional role of helping cushion downside risks. Think about owning both commodities and Treasurys as well as owning the risks to hedge them. The “cure” for higher oil prices is often higher oil prices, just as the “cure” for higher rates is higher rates.

Within our equities allocation, we continue to invest based on our broadening theme in the nearer term, which also aligns with favorable relative valuations that historically have been tailwinds to medium- to longer-term relative performance. The confluence of these factors continues to compel us to position U.S. Small and Mid-Caps as overweight, with a slight underweight to the S&P 500, while skewing our position away from the concentration risk that remains inherent in that index. We continue to believe this current backdrop is reminiscent of the late 1990s economy, which was a later-cycle economy that narrowed but was held afloat by the dot-com frenzy and secular-focused internet spending, similar to today’s AI-driven advance.

Much like then, U.S. Small- and Mid-Cap stocks have, until this year, underperformed their Large-Cap peers and, as a result, trade at similar valuation discounts to their Large-Cap peers as they did in late 1999. The next few years saw the benefits of the dot-com buildout shift to the broader economy and to companies that used it to reach their customers in new and more efficient ways, which provided a tailwind to the relative performance of these market segments. Even after the past seven years of U.S. Large-Cap outperformance, U.S. Mid- and Small-Cap stocks have returned 9.60 percent and 9.40 percent annually over the past 26 years compared to just 8.10 percent for their Large-Cap peers listed on the S&P 500. Valuation matters to intermediate- to longer-term investors. We expect a similar outcome in the years ahead. While we see opportunities moving forward, we remain neutral on international developed equities with an underweight to emerging markets.

Overall, we retain a slight overweight to fixed income and a neutral allocation to equities overall with a slight underweight to commodities. The overarching focus is on relative valuation, market broadening, and risk management through diversification. We reiterate our opinion that, much as in the last year and a half, diversification is not only a risk management tool but also a way to enhance returns moving forward.

U.S. Large Cap

The strength of U.S. Large-Cap equities in recent months has been driven by something investors ultimately care most about: earnings growth. With most S&P 500 companies now having reported second-quarter results, earnings growth has reached its strongest pace since 2021, while revenue growth has accelerated at the fastest rate in nearly five years to just under 15 percent. Just as importantly, companies have continued to exceed expectations by a wide margin, forcing earnings estimates higher for both the current and upcoming fiscal years—a notable departure from the more typical pattern of downward revisions as the reporting season matures.

AI-related investment remains a significant driver of earnings growth. The largest technology companies continue to benefit from growing demand for cloud computing, data center infrastructure, and digital productivity tools. Yet this earnings season also demonstrated that the benefits of that spending are extending beyond the market’s traditional leaders. Industrials, materials, financials, communication services, and energy companies have all participated in the earnings improvement, reflecting a healthier and more diversified backdrop than investors have experienced in recent years. Broader fundamental participation has translated into broader market participation, fueling outperformance of the equal-weighted S&P 500 by roughly 4 percent as of late August.

What stands out most is that corporate fundamentals continue to improve despite interest rates that continue to grind higher and ongoing geopolitical uncertainty. These two headwinds, alongside the constant debate about the sustainability of AI investment, have compressed the forward 12-month earnings multiple on the S&P 500 by 11 percent year to date, from 22x to start the year to 19.6x late in the third quarter. Despite the multiple compression, U.S. Large Caps are up 12.70 percent this year, as outstanding earnings growth has been more than enough to overcome these headwinds. We remain slightly underweight in the context of an overall neutral equity positioning, preferring higher levels of diversification expressed through equal-weight and value exposure in the U.S. Large-Cap asset class.

U.S. Mid Cap

Recent performance in U.S. Mid-Cap equities has reinforced a theme that has become more evident throughout 2026: Earnings growth is no longer confined to the largest companies in the market. While Mega-Cap technology firms continue to command attention, mid-sized businesses have increasingly benefited from the same forces supporting the broader economy, including resilient consumer demand, healthy business investment, and the ongoing buildout of AI-related infrastructure. Earnings for the S&P MidCap 400 are tracking approximately 17 percent above year-ago levels in the second quarter, marking another period of accelerating fundamental improvement and the fastest year-over-year earnings growth since the third quarter of 2022.

What stands out is the breadth of that improvement. Unlike Large Caps, where a handful of companies can have an outsized impact on index-level results, Mid-Cap earnings growth has been driven by a more diversified mix of industrial, financial, technology, and consumer-oriented businesses. This broader participation suggests that economic growth remains reasonably well distributed across the corporate landscape rather than concentrated in a narrow set of beneficiaries. This broadening tracks with the improvement in U.S. manufacturing Purchasing Managers’ Indexes (PMIs), which have moved from largely contractionary readings from October 2022 to firm expansion levels throughout 2026. As U.S. Mid Caps are more economically sensitive relative to Large Caps, this rate of change in the operating backdrop is supporting both investor sentiment and earnings results for Mid Caps, contributing to mid-teens returns year to date. We remain overweight.

U.S. Small Cap

The 2026 story in U.S. Small-Cap equities has been one of improving fundamentals meeting renewed investor confidence. After spending much of the past several years overshadowed by larger companies, Small Caps have reemerged as beneficiaries of stronger earnings growth, improving economic conditions, and a broader expansion in market leadership. The S&P 600 has outperformed Large Caps by over 8 percent year to date as the combination of economic broadening and attractive relative valuations has finally translated into outperformance.

Importantly, this shift has not been driven solely by changing investor sentiment. Earnings growth for small companies has accelerated, with forecasts calling for mid-teens earnings growth in 2026 and continued improvement into 2027. Many Small-Cap businesses entered the year with depressed valuations and significant operating leverage. As revenues improved, profits expanded at a faster pace, allowing earnings expectations to move higher. As an example, the median stock in the Russell 3000 is generating 14 percent year-over-year earnings growth in the second quarter, an acceleration relative to 10 percent in Q1 and 5 percent a year ago.

While an improvement in the earnings growth backdrop is not unique to Small Caps, the starting valuation discount provided a unique risk/reward baseline. If earnings growth is becoming more broad based, the case for a continued valuation dislocation looks less compelling. U.S. Small Caps are closing that valuation gap, propelling the asset class to near the top of the performance leaderboard. We remain overweight.

International developed markets

International developed economies have weathered the disruptions in the Middle East better than many expected this year. While the Strait of Hormuz remains largely closed to shipping traffic and Brent crude oil prices remain elevated in the high $90s- to low $100s-per-barrel range, international economies have demonstrated notable resilience. Following a strong performance in 2025, international equity outperformance paused at the onset of the conflict. However, investor optimism has begun to return as inflation trends have improved and supportive factors beyond attractive valuations relative to the U.S. continue to emerge.

Despite intense geopolitical headwinds and higher energy costs, the eurozone has remained resilient since the conflict began. The region navigated the summer with accelerating gross domestic product (GDP) growth and strong equity market momentum, with most major foreign equity indices trading near all-time highs as of mid-August. After slowing at the onset of the conflict, real GDP growth rebounded to 0.60 percent quarter over quarter during the summer following flat growth in the previous quarter. This marked the strongest quarterly reading since the first quarter of 2025. Economic activity, as measured by the S&P Global Eurozone Composite Purchasing Managers’ Index (PMI), has recovered from its May lows and returned to expansion territory, with an August reading of 52.0. Most major eurozone economies are currently expanding, with France remaining an outlier in contraction. Overall, this broad-based expansion is encouraging, particularly as the region continues to contend with elevated energy prices.

The most significant development over the past three months has been the shift in monetary policy expectations. Similar to what happened in the United States, market participants entered the year expecting interest rate cuts from the European Central Bank (ECB). However, persistent inflationary pressure stemming from higher energy costs has altered that outlook. Headline CPI inflation remains above the ECB’s 2 percent target at 3.30 percent year over year as of August. In response, the ECB implemented a 25-basis-point rate hike in June, and markets are currently pricing in two additional hikes before year-end. This policy trajectory is notably more restrictive than that of the United States, where no hikes have occurred thus far. As a result, monetary policy has become a headwind for regional growth and represents one of the sharpest reversals of central bank expectations globally. The eurozone’s nominal year-over-year GDP growth at 3.62 percent in Q2 is relatively in line with the deposit facility rate of 2.25 percent and Germany’s 10-year Bund yield of 3.45 percent, meaning that additional hikes would be fairly restrictive for the economy. While nominal GDP growth is expected to strengthen in the coming quarters, the ECB remains in a difficult position, balancing the need to contain inflation against the risk of slowing real economic growth during that process.

In contrast to the eurozone, Japan continues to face challenges stemming from a monetary policy stance that remains accommodative relative to the rest of the developed world. While the Bank of Japan has begun the process of normalization, investors generally view current policy as lagging inflationary pressures and global interest rate trends. The Bank of Japan has raised its policy rate by 25 basis points this year, with one hike so far in June. Markets are currently pricing in one to two additional hikes before year-end.

While headline measures of inflation appear relatively contained, underlying cost pressures continue to build. Core inflation, which excludes fresh food, was 1.80 percent year over year in July. However, consumers are experiencing significantly higher price increases in everyday necessities such as food, where prices rose 3.50 percent year over year. For corporations, producer prices increased 7.20 percent, reflecting elevated raw material and energy costs. These pressures have proven difficult for many businesses to absorb. Evidence of this strain is becoming increasingly apparent. According to Teikoku Databank, Japan’s largest corporate credit research firm, 556 companies declared bankruptcy during the first half of 2026 after being unable to sufficiently pass rising costs on to customers. This represents the highest number of inflation-related bankruptcies recorded since the dataset began in 2018. At the same time, manufacturers have announced plans to raise prices on more than 18,000 food and beverage products this year, suggesting further pressure on household budgets in the months ahead.

These economic challenges have also become a political issue. Public approval of the government’s efforts to combat rising living costs has deteriorated, with a recent Fuji News Network poll indicating that roughly 60 percent of respondents “do not approve” of current measures to fight inflation. Investor concerns surrounding fiscal policy and the pace of monetary normalization have also become increasingly evident in financial markets. Japanese government bond yields have climbed sharply, with the 10-year yield rising above 2.80 percent, its highest level since 1996. At the same time, the yen has remained under pressure, hovering in a range of 155 to 160 yen per U.S. dollar despite multiple rounds of official currency intervention. Japan’s Ministry of Finance intervened in foreign exchange markets in May and again in late July/early August to support the yen. The second round was especially noteworthy, as it was the first time since 2001 that Japan conducted a coordinated intervention with the help of the United States. Japan sold U.S. dollars, and the U.S. sold euros to buy yen.

While these actions temporarily strengthened the yen, the effects have proven short-lived, as investors continue to focus on Japan’s relatively low interest rates compared with the rest of the developed world. The persistence of yen weakness highlights the challenges facing policymakers. Until the Bank of Japan narrows the interest-rate differential with other major economies, the yen is likely to remain a preferred funding currency for global carry trades. A weak currency may support exporters, but it also raises the cost of imported goods and energy, creating an additional source of inflation pressure for consumers and businesses. As a result, the Bank of Japan faces the difficult task of balancing economic growth, financial stability, and inflation control as it continues its path toward policy normalization.

From a market performance perspective, the Morgan Stanley Capital International Europe, Australasia, and Far East (MSCI EAFE) Index has generated mid-teens year-to-date returns, keeping pace with U.S. Large-Cap equities. Top country performers have been driven by two primary themes early in the year: AI and commodity exposure. Countries such as the Netherlands, Austria, Singapore, and Japan have benefited from exposure to AI-related technologies and supply-chain buildouts, while Norway, Australia, and the United Kingdom have been supported by higher commodity and raw material prices. However, more importantly, while those themes lead the performance scoreboard, corporate earnings growth has broadened considerably. Early in the year, earnings growth expectations were concentrated in the energy and semiconductor sectors. Today, earnings growth is expected across 10 of 11 sectors, reflecting a healthier and more diversified earnings backdrop.

Current estimates call for full-year 2026 earnings growth of 14 percent versus 2025, representing the highest growth rate in five years. Valuations also remain attractive, with the MSCI EAFE Index trading at approximately 15.7x forward 12-month earnings estimates, representing a roughly 20 percent discount to the S&P 500. The discount peaked at the end of 2024, when the index traded at a 34 percent discount, but it has since been recovering ground, as international developed equities have outperformed U.S. Large Caps by high-teens percentages since the start of 2025.

International markets continue to benefit from improving economic activity, broadening earnings growth, and reduced concentration in a handful of market leaders. These factors remain supportive of the asset class. However, with many major equity markets trading near record highs, energy prices remaining sticky, and monetary policy becoming restrictive in key regions, we maintain a cautiously optimistic outlook and a neutral allocation relative to our long-term target.

Emerging markets

Emerging-market equities remain one of the best-performing asset classes year to date, with the Morgan Stanley Capital International Emerging Markets (MSCI Emerging Markets) Index up more than 25 percent at the time of this writing after gaining more than 30 percent in 2025. While the asset class remains one of the strongest-performing global equity categories, leadership has become increasingly concentrated in technology-oriented markets, particularly Taiwan and South Korea, whose large semiconductor and AI-related sectors have benefited from continued investment in AI infrastructure and data-center expansion. Recent gains have attracted additional foreign capital into both equities and local-currency bonds, although performance has become more uneven as investors evaluate the sustainability of current earnings expectations.

Key drivers behind emerging-market performance continue to include attractive relative valuations, strong economic growth prospects in many developing economies, and investors’ desire to diversify away from the concentration risk present in U.S. Large-Cap equities. AI-related demand remains a significant tailwind for export-oriented Asian economies, particularly those with exposure to semiconductors, memory chips, and technology hardware. Performance has been concentrated in Taiwan and South Korea; however, during the past several weeks, investors have shifted their focus from simple AI enthusiasm toward the sustainability of semiconductor earnings growth and memory pricing. While both markets remain among the strongest performers globally, volatility has increased as investors assess how much future AI demand is already reflected in current valuations.

Meanwhile, a number of commodity-exporting countries in Latin America have benefited from continued demand for industrial metals and agricultural products, broadening participation beyond the technology sector. Foreign capital flows have also been supported by ongoing concerns surrounding U.S. fiscal deficits and increased interest in non-U.S. assets.

While the outlook remains constructive, several risks persist. Emerging-market performance has become increasingly dependent on the continued strength of the AI investment cycle, creating greater sensitivity to any slowdown in technology spending or semiconductor demand. Geopolitical risks also remain elevated, including ongoing tensions between the United States and China; uncertainty surrounding global trade policy; and continued concerns over China's debt burden, real estate sector challenges, and unfavorable demographic trends. Although energy market volatility has moderated recently, many emerging economies remain vulnerable to future commodity price shocks given their reliance on imported energy.

The long-term case for emerging markets remains intact. The asset class continues to benefit from favorable demographics in countries such as India, higher expected economic growth rates relative to developed markets, and valuations that remain attractive compared with many developed-market equities. We believe emerging markets remain an important component of a diversified portfolio. However, given elevated geopolitical risks and our continued preference for other equity opportunities, we maintain a modest underweight to the asset class.

Bond yields have continued to march higher over the past few months as investors navigate an ever-shifting geopolitical and macroeconomic backdrop. After starting the year in a downward trend, interest rates across the yield curve began pushing higher in response to increased energy prices and inflation fears stemming from the onset of the Middle East conflict. The increase in rates was further fueled by renewed labor market strength as we pushed through spring and into the early summer months, which suggested the Fed was meeting the maximum-employment side of its dual mandate even as inflation moved further from its 2 percent target, prompting investors to consider whether the central bank would need to focus more squarely on price stability.

While inflation fears have pulled back recently from their conflict-level highs, they remain elevated compared with the levels that existed for much of the post-GFC period, and risks remain. At the same time, U.S. government debt continues to grow and is now competing for investor dollars with increased levels of debt issuance tied to the AI boom. We also note that rising interest rates are not only a U.S. phenomenon but rather a global reality, with yields in the eurozone, Great Britain, Australia, and Japan, to name a few, hitting multiyear highs. Investors around the globe are digesting higher amounts of debt and expressing their desire for extra compensation given the questions around central banks’ commitments to pulling inflation lower.

The recent announcements by the U.S. Treasury did not catch us by surprise. We have previously discussed our belief that the administration would do everything it possibly could to attempt to push rates lower, especially toward the intermediate to longer end of the curve given its impact on the U.S. housing market. With the administration increasingly describing the need to grow out of the current levels of debt and interest costs rising, it is not surprising that attempts to cap those costs will likely continue.

The potential for less forward guidance will likely impact not only equity market volatility but fixed income as well. Much as in equity markets, we urge investors to stay the course and continue to invest along the maturity curve. Higher current rates mean likely higher future returns for investors, with the good news being that current real rates—nominal rates less inflation expectations—reside at the highest levels since the 2006–2008 time period. Perhaps the reference to this period provides a dose of prediction humility for those contemplating investing only in shorter-term securities. Contemplate that in late 2007 the 10-year U.S. Treasury resided at levels similar to today’s and then spent the next 15 years at much lower yields before eventually moving above that level in mid-2023.

While we worry about the potential for inflation and the deteriorating U.S. fiscal position, we believe current real-rate compensation on Treasurys compensates investors for this risk. We retain a slight overweight to the asset class given the risk of over-tightening and our belief that U.S. Treasurys would offer a port in the storm if an economic slowdown were to occur; however, we recently trimmed our fixed income exposure. The proceeds were moved to REITs, an asset class that we believe provides a competitive yield relative to fixed income, with the opportunity to grow income if inflation does prove sticky or to benefit if inflation falters.

Taxable bonds

Through the end of August 2026, according to Lipper, fund flows into fixed income are tracking at the second-highest level on record for the first eight months of a year, trailing only 2019. Long-duration strategies have seen inflows roughly 3:1 relative to short-duration strategies and about 5:1 relative to intermediate-duration strategies. Investment-grade credit has seen inflows about 3:1 relative to high-yield credit.

This aligns closely with our view that longer-duration, higher-credit-quality bonds remain the place to be, driven primarily by rates. The inversion we have seen in the Treasury market over the past four to five years is now history, and a more normal—albeit higher—shaped curve is extremely enticing for fixed income investors. The two-year part of the curve is up about 95basis points this year, while the curve beyond 10 years is up roughly 65 basis points. As yields push up to and past 5 percent, with TIPS break-even rates still sitting around 2.25 percent to 2.50 percent along the curve, high-grade fixed income is as investable as we have seen in 20 years or more.

Investment-grade bonds are tracking Treasurys from a rate perspective, but spreads are essentially unchanged on the year. Cash bonds are trading anywhere from 80 to 115 basis points on an option-adjusted spread basis, so the pickup in yield is notable. High yield has also tracked Treasurys in the recent move but remains basically unchanged on the year, with spreads around +300 to +320 basis points along the curve. While that may appear enticing given absolute rate levels, growth concerns, hiccups in the private credit markets, and strong equity markets lead us to avoid doubling down on equity-like risk. We continue to focus on higher-credit-quality investment-grade fixed income while recommending a slight overweight to duration. Within government bonds, we continue to prefer nominal Treasurys over TIPS, while noting that future opportunities may present themselves if the Fed does not follow through on its “unconditional and unambiguous” commitment to returning inflation to 2 percent.

Tax-exempt municipals

Municipals continue to see very strong inflows this year, according to Lipper, with California flows dominating. From a historical perspective, municipals remain modestly expensive relative to Treasurys, with ratios inside 10 years still hovering near or below 70 percent, which is historically a bit rich for municipal bonds. The longer end is where we continue to find value. As rates back up, part of the move is attributable to extension risk in municipals, as the vast majority of long municipal bonds are callable and will see their duration extend at an increasing rate as rates rise due to convexity. We continue to look for value there, but investors should be mindful of de minimis risk, as bonds are bumping up against that threshold for the first time in possibly a generation.

We believe real assets play an integral role in building diversified portfolios due to their lower correlation to traditional equities and fixed income. Real assets can provide valuable hedges against unexpected inflation and have strong sensitivity to changes in real interest rates—important considerations when constructing resilient portfolios over an intermediate- to long-term period. Both 2021 and 2022 provided a lens into the value of this diversification, with the standout performance of commodities in response to rising inflationary pressures and Russia’s invasion of Ukraine. Contemplate that all major asset classes pulled back in 2022, while commodities provided investors with a 16.1 percent return. Once again, the diversification benefits of commodities were on display in early 2026 as the impact of the Middle East conflict pressured both fixed income and equities, while commodities pushed sharply higher. Interestingly, while commodities pulled back 14 percent in May and June, when tensions eased, they have recently regained momentum and are within 0.18 percent of their prior closing high. This remains a potential source of inflation and economic risk going forward.

Conversely, the sharp decline in real interest rates from 2010–2012 and, more broadly, through the end of 2021 provided a fertile backdrop for the eye-popping performance of REITs. Put simply, sharp changes on the inflation and real interest rate fronts are exceedingly difficult to call correctly from a timing perspective, underscoring the rationale for a structural allocation to real assets.

For much of the past 25 years, excluding 2022, many of the risks that existed in the global economy were tied to the possibility of tumbling into a period of deflation. This is where fixed income has historically proven to be an effective hedge against most economic and market downturns. However, both sides of the distribution are seemingly now in play, as inflation has remained elevated over the past few years. This is the narrow path that policymakers are attempting to navigate, with heightened risks on each side of the equation. Tariffs, deglobalization, increased geopolitical risks, heightened levels of debt, and questions of Fed independence serve only to increase those risks going forward. Given the heightened level of uncertainty that exists, we believe real assets play an increasingly important role in hedging market risks.

We continue to favor the inclusion of real assets and maintain our underweight exposure to commodities. However, we have decided to increase our allocation to REITs given their improving fundamentals and increased diversification benefits. While real yields remain positive and inflation expectations have pulled back, we believe that this environment may prove temporary. Improving fundamentals and a shifting macro backdrop are providing an opportunity to return this asset class to neutral. In other words, real assets have spent the past few years repricing to a new interest rate environment and are attractively valued compared with their equity market peers.

Real estate

Since we recently restored our Real Estate Investment Trust (REIT) exposure to its full policy weight, the asset class has generally performed in line with the expectations that supported the allocation change. Broad U.S. REIT indices have continued to produce positive total returns while maintaining favorable relative performance within the real estate category. Year-to-date total returns have been comfortably in double-digit territory and have served as a diversifier to traditional U.S. broad-based equities and fixed income.

Importantly, the drivers behind the committee’s decision to return our REIT allocation to neutral remain largely unchanged. Public real estate valuations continue to reflect a higher interest rate environment, while many of the operational fundamentals that underpin REIT cash flows have remained resilient. Occupancy levels, rental growth, and balance sheet quality across many sectors of the REIT market have generally remained intact despite elevated financing costs and ongoing scrutiny surrounding commercial real estate. The market appears increasingly able to differentiate between sectors experiencing structural challenges and those benefiting from durable demand trends, including data centers, industrial logistics facilities, healthcare properties, and select residential segments.

The past quarter has also reinforced one of the central conclusions of the committee’s original analysis: The primary risk associated with the prior REIT underweight was not that real estate fundamentals would deteriorate further but rather that investors would remain underexposed to an asset class whose repricing had already occurred. While interest rates remain elevated and refinancing risks continue to warrant monitoring, those concerns are now well understood and broadly reflected in asset prices. As a result, the risk/reward profile remains more balanced than it was during the period immediately following the rapid monetary tightening cycle.

The decision to fund the increased REIT allocation through a modest reduction in core fixed income continues to appear appropriate. The adjustment enhanced exposure to real asset cash flows, inflation-sensitive income streams, and long-term growth in property-level earnings without materially altering the portfolio’s overall risk profile. REITs continue to occupy a unique role within the strategic asset allocation framework by combining characteristics of both equities and tangible assets, thereby contributing to diversification across a range of economic scenarios.

An additional consideration supporting the committee’s decision is the increased importance of inflation-sensitive assets within diversified portfolios. While inflation has moderated from its recent peaks, structural uncertainties remain around long-term inflation dynamics, fiscal deficits, supply-chain resiliency, geopolitical fragmentation, and labor market pressures. In this environment, preserving purchasing power remains an important portfolio consideration. Unlike traditional fixed income, where coupon payments are largely fixed at issuance, REIT cash flows have the potential to grow over time through contractual rent escalations, lease renewals, occupancy improvements, and property-level pricing power. As a result, REITs may offer a more effective means of maintaining real income growth in environments where inflation remains elevated or proves more persistent than currently expected.

From a portfolio construction perspective, this characteristic is particularly valuable because it complements, rather than replaces, the role of fixed income. Core bonds continue to provide portfolio stability and income generation. However, their ability to grow cash flows over time is inherently limited. REITs occupy a unique middle ground by providing current income alongside the potential for future income growth, helping improve the portfolio’s long-term real return potential while maintaining exposure to tangible assets whose economic value is often linked to replacement costs, rents, and broader inflationary trends.

Overall, the committee’s decision to restore REIT exposure to policy weight remains consistent with both the original strategic rationale and subsequent market developments. While near-term performance was never the primary objective of the allocation change, the behavior of the asset class since implementation has generally supported the view that the extraordinary repricing associated with the post-COVID interest rate shock has largely been absorbed and that maintaining a structural underweight was no longer justified.

Commodities

Commodities have delivered strong year-to-date performance in 2026, although the path has become more volatile. Through July 31, the Bloomberg Commodity Index Total Return was up 23 percent year to date despite significant declines in energy and precious metals that contributed to a sharp June pullback before a rebound into mid-August. Energy remained the dominant driver of returns, but agriculture and industrial metals also contributed positively, while precious metals moved into negative year-to-date territory. Performance leadership has broadened beyond the precious metals theme and is now more clearly tied to energy supply risk, geopolitical disruption, and select crop and metals tightness.

Energy remains the clearest source of commodity leadership in 2026, though the most recent data shows a meaningful shift in sector momentum. The energy sector posted strong year-to-date gains through July, with July leadership led by refined products such as gas, oil, and ultra-low sulfur diesel. Renewed hostilities between the U.S. and Iran, diesel export restrictions from Russia, attacks on Russian energy infrastructure, and constrained global refining capacity all contributed to renewed supply-risk premiums. This reinforces the diversification value of commodity exposure during periods when geopolitical shocks can pressure inflation expectations and disrupt traditional asset-class relationships.

Precious metals have become a less supportive part of the 2026 commodity story. After serving as an important early-year leadership theme, the precious metals sector was negative year to date through July, with silver and gold both weighing on results. The recent weakness reflected rising yields, a firmer U.S. dollar at points during the period, and increased market expectations that the Fed could remain restrictive or even raise rates in response to persistent inflation pressure.

Outside energy, the latest data shows a more differentiated but still constructive commodity backdrop. Agriculture posted solid year-to-date gains through July, helped by strength in Kansas City wheat and coffee, while industrial metals also advanced as nickel and copper benefited from export restrictions, lower inventories, potential mine delays, and tariff-related concerns. Livestock was only slightly positive year to date after July weakness in live cattle reversed part of its earlier strength as lower New World screwworm risks reopened the possibility of cattle imports from Mexico. Overall, the breadth of gains remains meaningful, but the updated theme is less uniformly positive outside energy than it was earlier in the year.

Looking ahead, commodity returns are likely to remain highly sensitive to geopolitical developments, energy supply conditions, weather, and policy decisions. Middle East risks remain central, with energy prices still vulnerable to renewed disruption, while crop conditions and shifting weather patterns could drive agriculture and soft commodities. Metals could remain range-bound without stronger evidence of physical tightness, though lower inventories and supply disruptions could create upside risk. The key change from the prior outlook is that the commodity narrative has become more explicitly tied to geopolitical supply chains and policy risk rather than simply a broad inflation-hedge or reflation story.

We remain underweight the commodity asset class, preferring fixed income and economically sensitive asset classes such as Small- and Mid-Cap U.S. stocks. However, the latest information modestly strengthens the diversification case for maintaining some commodity exposure given the asset class’s positive year-to-date return, continued sensitivity to inflation shocks, and ability to respond to geopolitical and supply-chain stress in ways that may differ from traditional stocks and bonds. Our outlook for commodities remains modestly positive but with greater emphasis on volatility and dispersion across sectors. Overall, we continue to believe commodities retain positive return expectations and meaningful diversification benefits while recognizing that recent gains are heavily dependent on energy supply risk and may remain vulnerable to reversals if geopolitical tensions ease or global growth weakens.

Frequently asked questions

What role do commodities play in a diversified portfolio?

Commodities can help diversify a portfolio because they may respond differently than stocks and bonds during periods of inflation, geopolitical disruption, or supply-chain stress.

Why have commodities performed well in 2026?

Commodity gains have been driven largely by energy supply risk, geopolitical disruption, and select areas of tightness across agriculture and industrial metals.

Why remain underweight in commodities if they have diversification benefits?

We remain underweight because the asset class can be volatile, and recent gains have been heavily tied to energy supply risk. We still see a role for some commodity exposure, but we prefer fixed income and economically sensitive asset classes such as Small- and Mid-Cap U.S. stocks.

The opinions expressed are those of Northwestern Mutual Wealth Management Company as of the date stated on this material and are subject to change. There is no guarantee that the forecasts made will come to pass. This material does not constitute individual investor advice and is not intended as an endorsement of any specific investment or security. Information and opinions are derived from proprietary and non-proprietary sources.

Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company (NM), Milwaukee, WI, and its subsidiaries. Investment brokerage services are offered through Northwestern Mutual Investment Services, LLC (NMIS), a subsidiary of NM, broker-dealer, registered investment adviser, and member FINRA and SIPC. Investment advisory and trust services are offered through Northwestern Mutual Wealth Management Company® (NMWMC), Milwaukee, WI, a subsidiary of NM and a federal savings bank. Products and services referenced are offered and sold only by appropriately appointed and licensed entities and financial advisors and professionals. Not all products and services are available in all states. Not all Northwestern Mutual representatives are advisors. Only those representatives with “Advisor” in their title or who otherwise disclose their status as an advisor of NMWMC are credentialed as NMWMC representatives to provide investment advisory services.

Please remember that all investments carry some level of risk, including the potential loss of principal invested. Indexes and/or benchmarks are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment. Diversification and strategic asset allocation do not assure profit or protect against loss.

Although stocks have historically outperformed bonds, they also have historically been more volatile. Investors should carefully consider their ability to invest during volatile periods in the market.

With fixed income securities and bonds, when interest rates rise, bond prices usually fall because an investor may earn a higher yield with another bond. Moreover, the longer the maturity of a bond, the greater the risk. When interest rates are at low levels, there is a risk that a significant rise in interest rates can occur in a short period of time and cause losses to the market value of any bonds that you own. At maturity, the issuer of the bond is obligated to return the principal (original investment) to the investor. High-yield bonds present greater credit risk than bonds of higher quality. Bond investors should carefully consider risks such as interest rate risk, credit risk, liquidity risk, securities lending risk, repurchase, and reverse repurchase transaction risk.

Investing in special sectors, such as real estate, can be subject to different and greater risks than more diversified investing and may present more financial and other risks than investing in companies of larger capitalizations and more seasoned companies. Declines in the value of real estate, economic conditions, property taxes, tax laws, and interest rates all present potential risks to real estate investments.

Investing in real estate companies entails some of the risks associated with investing in real estate directly, including sensitivity to general and local economic and market conditions, demographic patterns, changes in interest rates, and governmental actions.

Investors should be aware of the risks of investments in foreign securities, particularly investments in securities of companies in developing nations. These include the risks of currency fluctuation, political and economic instability, and less well-developed government supervision and regulation of business and industry practices, as well as differences in accounting standards.

Commodity prices fluctuate more than other asset prices, with the potential for large losses, and may be affected by market events, weather, regulatory or political developments, worldwide competition, and economic conditions. Investment can be made directly in physical assets or commodity-linked derivative instruments, such as commodity swap agreements or futures contracts.

Treasury Inflation-Protected Securities (TIPS) are securities indexed to inflation in order to protect investors from the negative effects of inflation.

The U.S. Large Cap asset class is measured by the S&P 500 Index, which is a capitalization-weighted index of 500 stocks. The S&P 500 Index is designed to measure performance of the broad domestic economy through changes in the combined market value of 500 stocks representing all major industries.

The gross domestic product (GDP) is the amount of goods and services produced in a year in a country.

The U.S. Mid-Cap asset class is measured by the S&P MidCap 400 Index, which is the most widely used index for mid-sized companies and covers approximately 7 percent of the U.S. equities market.

The U.S. Small Cap asset class is measured by the S&P Small Cap 600 Index, a market value-weighted index that consists of 600 Small-Cap U.S. stocks chosen for market size, liquidity, and industry group representation.

The International Developed Markets asset class is measured by the Morgan Stanley Capital International Europe, Australasia, and Far East (MSCI EAFE) Index, which is composed of all the publicly traded stocks in developed non-U.S. markets. The MSCI EAFE Index consists of the following 22 developed market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.

The International Emerging Markets asset class is measured by the MSCI Emerging Markets Index, which is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The MSCI Emerging Markets Index consists of the following 21 emerging-market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.

The Real Estate asset class is measured by the Dow Jones U.S. Select REIT Index, which intends to measure the performance of publicly traded REITs and REIT-like securities. The index is a subset of the Dow Jones U.S. Select Real Estate Securities Index (RESI), which represents equity real estate investment trusts (REITs) and real estate operating companies (REOCs) traded in the U.S. The indices are designed to serve as proxies for direct real estate investment, in part by excluding companies whose performance may be driven by factors other than the value of real estate.

The Commodities asset class is measured by the Bloomberg Commodity Index (BCOM), formerly the Dow Jones-UBS Commodity Index, which is a highly liquid, diversified, and transparent benchmark for the global commodities market. It is calculated on an excess return basis and reflects commodity futures price movements.

Consumer Price Index (CPI) inflation examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care.