Soft vs. Hard Ice Cream

by: Kenneth J. Entenmann CFA®, May 08, 2025

As summer approaches, it is time to debate once again: which form of ice cream is the best? Soft or Hard Ice Cream? Personally, I prefer soft ice cream. The markets are also in the midst of a soft vs. hard debate. Only, the market is debating the different messages of soft and hard economic data. When it comes to economic data, I prefer hard economic data.

Soft economic data is based on surveys of economic cohorts. For consumers, there is the Univ. of Michigan Consumer Sentiment Index, the Conference Board’s Consumer Confidence Survey, and consumer surveys on sentiment, jobs, and income. The CEO Optimism and Capital Spending surveys for corporations and the NFIB’s Small Business Optimism survey are also used. corporations and the NFIB’s Small Business Optimism survey. In the wake of the April 2 “Liberation Day” tariff announcements, these surveys showed significant weakness. The soft data reaction to the trade wars has been overwhelmingly negative.

What data should we believe? The soft data is forecasts doom and gloom, but the hard data continues to show an economy that is more than holding its’ own.

I believe the soft data is processing a worst-case scenario on the trade situation. Indeed, if the tariffs remain at the highest levels forecast by the Trump administration, it is likely a recession is in the offing. However, if the high levels of tariffs that were “paused” for 90 days (roughly July 4th) are negotiated away in new trade deals that result in freer and fairer global trade, then the economy should be just fine. The potential range of outcomes is astonishing!

Every day, the markets get conflicting messages from the Trump Administration. Today they announced that Treasury Secretary Bessent will be head to Switzerland to negotiate trade with China. Hooray! Then, later that same day, the administration announced that the 145% tariffs on Chinese goods would remain. Boo! This uncertainty will likely persist as trade negotiations proceed. Indeed, this uncertainty has and will continue to distort the economic data, both soft and hard, for the next three quarters.

Most importantly, it is difficult to believe that the Fed will be cutting interest rates any time soon. Today, the Fed kept rates unchanged and cited concerns for higher unemployment and higher inflation. That would be called Stagflation! But with the most recent employment data demonstrating strength, inflation still well above the Fed’s target and pressure on prices due to potential tariffs, the Fed is stuck between a rock and a hard place. Until the hard data weakens, the Fed will likely to remain on hold for the foreseeable future.

What is an investor to do? First and foremost, acknowledge the volatility. For long-term investors, the daily vacillations of the market should be ignored. The time frame of today’s traders and algorithms can be measured in nanoseconds. Let the traders trade every sound bite and news release. Second, keep an appropriate time horizon for your portfolio. For most, this time frame is measured in years and decades. Lastly, maintain diversification! Given the gloom and doom of this volatile year, many of our clients have called a bit panicked by the market gyrations. Most, if not all, are relieved to find out that their long-time horizon, diversified portfolios have posted modestly positive returns year-to-date. As we have often said in this blog, let the traders trade. Our job is to invest!

Now, I am going out for a large soft vanilla cone with chocolate sprinkles!