NEW YORK (TheStreet) -- Investors measuring the health of the economy may want to give greater weight to the improving monthly jobs numbers than the negative first quarter GDP result, said Christian Menegatti, chief investment strategist, Windhaven Investment Management.
"I tend to be positive in the sense that job creation will drive the U.S. economy to stronger growth in the next few quarters," he said. "However, there is not much wage inflation yet. A lot of the jobs are temporary and there remains some slack in the job market so one really does need to look at it holistically and not just at the headline number."
Regarding inflation, Menegatti said the surprise Street-beating jump to 0.3% in the April core CPI was an encouraging start. It remains to be seen if it is sustainable in his opinion, but it is moving in the right direction and it should continue if the labor market continues to tighten.
"Core inflation in the U.S. has accelerated lately and the recent rebound of commodity prices, together with the tightening of labor market is something worth keeping an eye on," said Menegatti adding that "high inflation in the United States is definitely not our baseline scenario."
The yield on the benchmark 10-year Treasury bond has been driven lower by overseas buying will likely turn around and tick higher as the year progresses.
That's why "One should take a barbell approach to fixed domestic fixed income," he said. "Dedicate part of your bonds to longer maturities so you can benefit from safe haven flows and because the yield curve tends to flatten during rate hike cycles."
As for equities, Menegatti said volatility is back and that makes diversification important, especially into foreign markets like Europe and Japan which are stimulating their economies. He noted, "There are definitely opportunities in the international equity market and I would say a tilt toward those markets is warranted still."