One chart that shows the weird, vexing mystery of this economy

  • A chart from Schwab's Liz Ann Sonders showing soaring consumer confidence versus falling retail sales perfectly illustrates the 'hard' vs. 'soft' economic debate.
  • Nasdaq composite closed at a record Thursday as markets put more weight on sentiment.
  • But hard data has yet to catch up.

As the stock market pushes toward fresh records, the biggest debate on Wall Street going on right now is whether to believe the "soft" data or the "hard" data about the economy. The soft data is reflecting confidence in President Trump's economic policy and goosing the stock market, while the hard data, things like actual sales, is struggling.

Here is a perfect example of the dichotomy on display right now presented by Liz Ann Sonders, chief investment strategist at Charles Schwab. The Conference Board's "soft" consumer confidence index hit in March its highest since December 2000 . On the other hand, "hard" retail sales fell for a second straight month in March.

For now, stocks are favoring the sentiment measures. The Nasdaq composite closed at a record high Thursday, while the S&P 500 is within 2 percent of its all-time high. The Dow Jones industrial average closed Thursday within 3 percent of its all-time high.

"Sentiment at the corporate level has dramatically improved following the Democrat loss. Period," Canaccord Genuity Chief Market Strategist Tony Dwyer said in a note in March, when his firm raised its year-end S&P 500 target from 2,340 to 2,470. That's 4.8 percent above where the index closed Thursday.

One piece of hard data that the bulls have in their favor is earnings. The S&P 500 is also expected to post its third straight quarter of year-on-year profit per share growth.

But the much of the hard data is reflecting weakness. The pace of commercial and industrial loan growth — typically an indicator on business investment that's needed to fuel the economy — fell this month to its slowest in nearly six years, according to the Federal Reserve. This the actual amount of loans being extended by banks to actually grow the economy. This is hard data.

"We continue to expect a slow expansion of the economy. It has been disappointing," said John Bredmeus, vice president, Allianz Investment Management. Given the sluggish recovery of the last several years, "I think we need to recalibrate in terms of what the real potential is for the U.S. economy is given the demographics and some of the wealth distribution issues."

The divergence between the hard and soft data continued this week. The Conference Board's Leading Economic Index, which measures prospects for the U.S. economy, showed Thursday a rise in March to a record high.