New York CNN Business  — 

Wall Street powerhouse Goldman Sachs reported earnings that easily topped analysts’ expectations, capping a stellar week of bank results and helping to power the broader market to solid gains Friday.

Goldman Sachs said that it posted a profit of $5.4 billion for the third quarter, which works out to $14.93 a share. Analysts were forecasting earnings of $10.18 a share. Revenue also surpassed expectations, surging 26% from a year ago to $13.6 billion — far above the $11.7 billion estimate.

Shares of Goldman Sachs (GS) rose nearly 4% on the news. The stock, which is now up 54% this year, is the best performer in the Dow for 2021.

Goldman’s results lifted the Dow by more than 380 points, or 1.1%, Friday. The Dow finished the week with a gain of 1.6% and is now within 1% of the all-time high it hit in August.

The S&P 500 jumped 0.8% Friday and closed up 1.8% for the week while the Nasdaq rose 0.5%. and ended the week up more than 2%.

Strong earnings from big banks are a main reason for the market’s recent rally. In addition to the solid numbers from Goldman Sachs, Wall Street titans JPMorgan Chase (JPM), BlackRock (BLK), Citigroup (C), Bank of America (BAC) and Morgan Stanley (MS) all posted impressive results.

The financial firms’ strong numbers come from their investment banking businesses, thanks to a pickup in merger activity and robust demand for initial public offerings.

To that end, Goldman Sachs said Friday that its investment banking revenues soared 88% from a year ago, to $3.7 billion, and the company is predicting a continued surge in this business segment.

“Given the current levels of M&A announcements and continued healthy activity among financial sponsors, we expect acquisition financing activity to remain high,” said Goldman Sachs chief financial officer Stephen Scherr on a conference call with analysts.

“Despite significant levels of completed transactions, our investment banking backlog nonetheless ended the quarter significantly higher than year-end levels,” he added.

Nonetheless, Goldman Sachs did issue some cautionary comments about the inflation outlook. The bank said in its earnings presentation that there was an “increased likelihood of tightening monetary policy in the near-term, reflecting inflationary pressures.”

Translation: The Federal Reserve is likely to begin tapering, or cutting back, on its bond purchase program in the next few months. Then it will probably look to raise interest rates as soon as late next year.

Goldman Sachs CEO David Solomon acknowledged that inflation has crept into the economy. But much like JPMorgan Chase boss Jamie Dimon, Solomon suggested that paying people more is a good problem to have at a time when business is booming.

“There’s wage inflation everywhere at all aspects of every business right now. We’re extremely focused on it. We are a pay-for-performance culture, and there’s no question that people are performing,” Solomon said on the conference call.

But he added that “we’re very, very comfortable that we’re managing this in a way where we can show real operating leverage to our shareholders given our performance, and at the same time, pay our people exceptionally for the exceptional performance.”

“We’re on top of it, we feel good about it,” Solomon concluded.