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JP Morgan global head of equity strategy Mislav Matejka published a nuanced bearish view this week that predicts both lower stock prices and, more helpfully, lower bond yields.

Mr. Matejka finds risk-reward balance unattractive for global equities despite September’s market weakness. Hopes that manufacturing activity would recover to match resilient services industry growth have been dashed by signs that services are now weakening.

The U.S. yield curve, which has been sharply inverted, is arguably the most ominous sign for investors. The strategist emphasizes that it is never wrong as a recession indicator, with a lag of between 12 and 18 months. Also, the ongoing strength of the U.S. dollar is also a negative indicator for the strategist as historically it has almost always been accompanied by risk-off market behaviour.

The underperformance of economically sensitive market sectors in recent weeks suggests that the Federal Reserve has made a policy mistake and overtightened monetary policy, according to Mr. Matejka. Cyclical stocks usually outperform in inflationary, high growth periods like now. Their underperformance implies that investors believe that the Fed went too far with rate hikes and growth is set to grind to a stop.

JP Morgan believes that interest rates are close to their cycle highs. As a result, the fourth quarter of 2023 could be an opportune time to buy equities that benefit from lower bond yields, like attractively valued technology, consumer staples and utilities.

-- Scott Barlow, Globe and Mail market strategist

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Stocks to ponder

Birkenstock The sandal company needs to sell more clogs and boots and boost sales from its own website and boutiques to attract new shoppers amid a cost of living crisis, investors and analysts said before it lists on the New York Stock Exchange next week. They believe a cost of living crisis – which has seen consumers rein in spending on discretionary items like shoes and clothing in favour of essentials – could be a challenge for the premium footwear company.

Games Workshop (GMWKF) This company, which trades in London but also in the U.S. as an ADR, designs, manufactures, distributes, and sells miniature figures and games globally. It represents the third largest holding in the portfolio managed by Jason Del Vicario and Steven Chen of HillsideWealth | iA Private Wealth Inc. Here they explain why they see it as an excellent stock for investors to hold.

The Rundown

The reasons behind the bond market turmoil

The months-long rout in global bond markets reached a fever pitch this week, as investors increased their bets that the world economy is entering a new era of stubborn inflation and persistently hawkish central banks. As the Globe’s Mark Rendell tells us, analysts are still debating why interest rates have risen so abruptly.

Also see:

Markets and economists react: Bond yields surge as traders price in higher odds of another BoC rate hike after jobs data

Rob Carrick: Bonds are brutal and stocks are sinking - does a 10-year GIC sound good right about now?

Frederick Vettese: Do long-term bonds represent a once-in-a-generation opportunity?

Mike Dolan: ‘Risk-free risk’ re-emerges as bonds minesweep 5%-plus

Rebalancing your portfolio should always be top of mind

The most underrated and underappreciated aspect of financial asset management is rebalancing, says Tom Czitron, a professional trader with more than four decades experience managing money. He illustrates why. Meanwhile, Frederick Vettese has some insight on how often one should rebalance.

Others (for subscribers)

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

Number Cruncher: 19 stocks that thrive despite S&P 500′s dive

Ian Tam: Why this may be a good time to buy a TSX 60 ETF

Gordon Pape: While interest rate increases have hurt, my High-Yield Portfolio continues to outperform

Friday’s analyst upgrades and downgrades

Thursday’s analyst upgrades and downgrades

Ted Dixon: CEO buys as Petrus Resources positions for returning capital to shareholders

Scott Barlow’s Noteworthy: Trading dividend-paying stocks for energy and other market insights

Thursday’s Insider Report: Three dividend stocks traded by CEOs and company presidents

Globe Advisor

Why this money manager is trimming U.S. tech stocks and adding more Canadian industrials

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What’s up in the days ahead

It’s been a brutal year for dividend investors. But John Heinzl has no regrets and will explain why he’s sticking to his Yield Hog dividend growth portfolio.

An uneasy calm: 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

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