This is the year diversification went to work in client portfolios: BNY Wealth's Alicia Levine

Key Concepts:

• S&P 500 target reduction
• Recession odds (25%)
• Soft data vs. hard data
• Consumer confidence
• Tariffs (potential impact on GDP)
• April 2nd as an "event day"
• Clarity vs. uncertainty in policy
• Diversification in portfolios
• 12-18 month market outlook

1. Market Volatility and S&P 500 Target Reduction

• The market is experiencing volatility, with the Dow, Nasdaq, and S&P futures all down.
• BNY Wealth has reduced its S&P 500 target for the year from 6600 to a range of 6000-6400.
• This adjustment reflects concerns about potential economic slowdown and policy uncertainty.

2. Increased Odds of Recession

• The firm has increased the odds of a recession to 25%, although it's not the base case.
• The decision is based on deteriorating "soft data" (e.g., consumer confidence) while "hard data" (e.g., consumption) remains relatively strong.
• The concern is that declining consumer confidence could eventually lead to reduced consumption and investment.

3. The Impact of Policy Uncertainty and Tariffs

• Uncertainty about future policy, particularly regarding tariffs, is a major concern.
• Businesses may become "frozen," delaying investment and hiring decisions due to a lack of clarity.
• The potential impact of tariffs on GDP is discussed:
  • Tariffs in the range of $600-$700 billion (around 2% of GDP) would be "very difficult for markets to digest."
  • Tariffs in the range of $150-$200 billion would be more manageable for the U.S. economy.

4. April 2nd as a Potential "Clearing Event"

• April 2nd is highlighted as a key date when more clarity on trade policy is expected.
• The market is already "negative" and "de-risked," with portfolios having sold off.
• The hope is that April 2nd will provide enough clarity for investors to re-enter the market.

5. Clarity vs. Uncertainty: Which is Worse?

• The discussion explores whether it's better to have certainty about large tariffs or to continue with mixed messages and uncertainty.
• The conclusion is that uncertainty is worse for the economy because it makes it difficult for businesses to plan and invest.
• "I think the uncertainty is worse because then the uncertainty becomes endogenous to the models, right? You can't predict. You can't."

6. Investment Strategy and Diversification

• The firm advises clients to maintain diversified portfolios, emphasizing that diversification has been beneficial in the current market environment.
• The focus is on a 12-18 month outlook, considering the tax implications of making changes to portfolios.
• The expectation is that markets will be higher in 12-18 months, but the first half of the year is expected to be slower than the second half.

7. Soft Data vs. Hard Data

• Soft Data: Subjective measures of economic activity based on surveys and sentiment, such as consumer confidence or business expectations.
• Hard Data: Objective, measurable economic indicators like GDP growth, employment figures, and retail sales.

8. Synthesis/Conclusion

The market is facing significant uncertainty due to potential tariffs and unclear policy. BNY Wealth has adjusted its S&P 500 target and increased the odds of a recession, but remains optimistic about the long-term outlook. The key is for policymakers to provide clarity so that businesses can make informed decisions. Diversification remains a crucial strategy for navigating the current market volatility. April 2nd is a critical date to watch for potential resolution of policy uncertainty.