LIVE MARKETS-How much clarity can hard data bring?

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HOW MUCH CLARITY CAN HARD DATA BRING?

As usual, investors will closely monitor the crowded raft of economic data this week with PCE, factory orders, Q1 GDP and April payrolls all due for release.

But Lauren Goodwin, chief market strategist at New York Life Investments, in her latest report, sounds doubtful that the economic releases - usually valuable anchors vs policy headlines and confidence surveys - will bring any clarity to the economic outlook or to markets.

From just policy announcements and soft data, Goodwin worries that nobody knows exactly "how deteriorating business and consumer confidence will materialize into real economic conditions."

But now, even hard data has to be "taken with a large grain of salt" because numbers from the first half of the year will include "distortions from a rush to purchase ahead of tariffs before any slowdown will be felt, likely in Q3."

As a result, this leaves markets "more susceptible to wild swings as investors extrapolate the wide confidence interval of economic outcomes," Goodwin writes. Tuesday's market seemed to be a case in point with Wall Street's major indexes looking decidedly indecisive about which direction to go in.

Another concern she points to is the breakdown of the historical link between Treasury yields and the U.S. dollar. So Goodwin suggests looking beyond the usual diversification strategies, which typically have “60/40” allocations relying on bonds for safety.

Usually, higher bond yields give the U.S. dollar a boost. But Goodwin says that relationship is at its weakest in three years, possibly marking a shift where investors are "starting to question the safety of U.S. assets in times of stress."

So the strategist is suggesting a broader toolkit. For example, she sees gold and other real assets gaining favor as inflation hedges.

Lower currency hedging costs are making international bonds more attractive. And she says that a weaker dollar could offer an entry point for commodity exposure.

(Sinéad Carew)

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