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Robert Buckland, chief global equity strategist at Citigroup, has some new advice that appears contradictory on the surface but actually sets investors up for lucrative returns over the next 12 months.

Mr. Buckland’s research report, Global Equity Quarterly, this week warns clients that global earnings expectations remain far too high. Consensus forecasts point to 11 per cent profit growth for the MSCI All Country Index in 2022 and 7 per cent in 2023.

In Citi’s view, profit growth will only come in at between zero and 5 per cent for both this year and next.

Even that will be too bullish if global recession hits, which Citi economists now see as a roughly 50 per cent probability event, Mr. Buckland says.

If Citi is right and earnings significantly contract, history suggests it will be cyclical sectors – energy, materials and industrials – that will take the brunt of a market sell-off.

Yet – and here’s where the contradiction comes in – Mr. Buckland and Citi’s global research team are predicting a 17 per cent gain for the global equity benchmark by mid-2023. He sees some short-term pain leading to longer-term gain – especially if the right sector and geographical weightings are chosen.

The strategist’s bear market checklist features heavily in this optimism. It consists of 18 market indicators that have historically warned of sustained downturns. Currently, only six of the 18 indicators are signalling a prolonged bear market and this implies that investors should buy the dip.

In terms of what to buy, Citi’s view is more defensive than the index return target suggests. Geographically, they are overweight the highly diversified and liquid U.S. market along with dirt cheap U.K. risk assets.

Mr. Buckland is recommending three of the most conservative equity market sectors – health care, communications services and financials. He is underweight the more economically sensitive sectors of industrials, consumer discretionary and energy.

Citi’s framework implies a workable investment strategy that will be profitable if his forecast for global equity returns holds. The strategy would involve waiting for downward earnings revisions – and there are signs, like Citi’s own earnings revision index, that the process has already begun – and then adding lower-risk equity positions during the resulting volatility.

I have mentioned previously that my two favourite market sectors are cloud computing and health care. Telecommunications and bank stocks are two likely sectors I’ll be adding positions to in my portfolio if volatility appears.

-- Scott Barlow, Globe and Mail market strategist

Also see: Investors fear earnings season will spark new equities selloff

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The Rundown

Why investors should beware the myth of a friendly recession

Judging from the market’s behaviour this week, many people seem to be betting on the notion that the economy is headed into a mild downturn that will cool inflation and tame oil prices without doing much damage to corporate earnings or stock prices. In theory, this is possible. In practice, though, it would be unusual to experience such a well-behaved pullback. Ian McGugan explains.

Political woes and economic funk mean few takers for British assets

A potent mix of weak growth, high inflation, and a new bout of political instability means no respite in sight for British assets struggling to find interest from investors. British stocks, bonds and the sterling are all feeling the malaise this summer, and optimism the outlook will improve remains muted after Boris Johnson said he would resign as British prime minister, reports Reuters.

U.S. recession fears beckon investors back to painful bonds trade

Surging U.S. inflation and rising interest rates have dulled the allure of Treasuries this year, dealing bond prices their worst first-half performance since at least 1973 after a 40-year bull market. Treasuries, however, have become more attractive recently on fears that the Federal Reserve’s hawkish monetary policies will bring on a recession that pushes the U.S. central bank to stop or slow its rate hikes sooner than expected, reports Reuters.

Also see: King U.S. dollar stands tall as recession fears churn global markets

Others (for subscribers)

The highest-yielding stocks on the TSX, plus risk data

Number Cruncher: Six automaker stocks that can help dividend investors ride shift to EVs

Friday’s analyst upgrades and downgrades

Thursday’s analyst upgrades and downgrades

Friday’s Insider Report: Billionaire Jim Pattison invests nearly $10-million in this dividend stock

Thursday’s Insider Report: CEO, CFO and chairman buy this high-yielding stock after 22% dividend hike

GameStop rises as stock split lures retail investors

Globe Advisor

Use of GICs for ‘safety’ grows but experts see high quality bonds as more flexible

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Ask Globe Investor

Question: I am an IG Wealth customer. I am freaking out as my TFSA, RRIF, and non-registered accounts continue to decline since the beginning of the year. I want out. Friends advise to pull the money, accept the loss, and buy high dividend investments. Also, do it myself to avoid fees and an MER of 2.06 per cent. Is there a course I can take to prepare myself for personal money management? – Hans B.

Answer: It is a good idea to take an investing course before you plunge into making your own decisions. It doesn’t guarantee success, but it will certainly improve your odds.

There are several online investing courses that you might consider. Wealthsimple offers a free course that it claims “will turn you into a financial genius in less than 45 minutes”. I doubt that, but since it’s free there is no harm in looking at it.

A better bet would by the Canadian Securities Course for Investors, offered by the Canadian Securities Institute. Details can be found here.

Other on-line courses in Canada are accessible here. Some community colleges also offer investment courses.

- Gordon Pape

What’s up in the days ahead

David Berman takes a look at a timely question: Do outages hurt the share prices of telecom companies?

Dollar takes it all and other world market themes for the week ahead

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

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Compiled by Globe Investor Staff