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Morgan Stanley’s chief U.S. equity strategist Michael Wilson would be my pick for the most accurate market forecaster in the past 18 months. Apparently, he feels similarly, as he took a bit of a victory lap in his weekly report.

The consistent underperformance of small cap and lower quality stocks since mid-March indicates to Mr. Wilson that his “mid-cycle transition narrative has been playing out nicely.” Monday’s market volatility also fits the strategist’s expectations, as he has been warning that the shift from early cycle outperformers to mid-cycle often features an equity market correction of up to 20 per cent.

Morgan Stanley is recommending that clients play defence in their portfolios, which investors may at first find a bit premature with global economies still in the process of re-opening. Mr. Wilson, however, believes we have seen the peaks in terms of economic growth expectations and upwards earnings revisions. The decline in profit growth forecasts to more normalized levels is particularly important, as disappointing forward guidance often leads to stocks being re-rated lower.

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Mr. Wilson has upgraded consumer staples stocks to overweight, which even he admits is boring, and downgraded materials stocks to neutral. He added Oreo cookie and Philadelphia cream cheese provider Mondelez International Inc. to his “Fresh Money Buy List” (full list posted on social media here).

As a firm, Morgan Stanley believes the current market cycle will be characterized by extremes and speed. Mr. Wilson’s U.K.-based colleague Andrew Sheets describes this pattern as “normal, strong and short.” It will proceed the same way as previous cycles, but there will be bigger economic and asset price swings, and it will happen quicker.

We’ve already seen equity markets change emphasis at bewildering speed. The six months after the March 2020 market bottom saw technology companies and other sectors not sensitive to economic growth outperform. November 2020 to March 2021 period was market by a powerful value stock rally that included most commodities.

Now we’re in a mid-cycle environment, historically typified by higher quality, dependable growth stocks leading the market. Who knows how many months this lasts. The only stage left is late cycle, and then the next recession hits. Mr. Wilson’s suggestion to position portfolios more defensively becomes more attractive with this perspective.

-- Scott Barlow, Globe and Mail market strategist

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

Stocks to ponder

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Canadian Net Real Estate Investment Trust (NET-UN-X) This REIT is on the cusp of entering correction territory with its unit price down nearly 10 per cent from its record closing high reached last month. It is a security that may be of interest to investors seeking reliable income, especially given the recent pullback, Jennifer Dowty says in this profile.

The Rundown

Seven ETFs to fight inflation’s predation in your investment portfolio

Consumer prices are rising faster than many investors have seen in their lives, and investments that feed off inflation are gaining ground. Interested in adding some of this inflation-fighting capability to your portfolio? To highlight what’s available, seven ETF companies were asked by Rob Carrick to highlight a single fund in their lineup for investors seeking inflation protection.

With inflation risk continuing to rise, here’s how to position your portfolio

The “transitory” inflation promised by our central banks is looking increasingly elusive. Gordon Pape has some thoughts on how investors should be positioning their portfolios.

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Tread carefully when using VIX for investment decisions

Many investors were worried that markets could drop dramatically given their lofty valuations and threats, including rising interest rates and another potential wave of the coronavirus. But you wouldn’t have known it from following the VIX. Brenda Bouw tells us more about the latest signals from Wall Street’s favourite fear gauge - and why you may not want to time your investments with it.

Others (for subscribers)

Monday’s analyst upgrades and downgrades

Monday’s Insider Report: Executive invests over US$450,000 in this stock as it rallies to a record high

Robinhood seeks up to US$35-billion valuation in mega U.S. IPO

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Globe Advisor

The Financial Times: European shares come in from the cold

Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’’ portfolios.

Ask Globe Investor

Question: I am an immigrant from Italy who became a Canadian resident July 2015. I am not a citizen yet, but in the process. I got my permanent residency status in 2017. My question is, when do I qualify to make contributions to a Tax Free Savings Account (TFSA)? How do I figure out how much I can contribute now?

- Francis

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Answer: Once you have a Social Insurance Number (SIN), you can start contributing to a TFSA. This is also assuming you are of age of majority. So in 2017 and 2018 the maximum a Canadian could contribute was $5,500 for each year. For 2019, 2020 and 2021, the maximum amount was $6,000 for each year. So the most you can contribute to a TFSA is $29,000. To confirm this amount I suggest you log into the CRA website My account for individuals. There you will see the amount you can contribute to a TFSA as of January 1, 2021. Here is the link for your convenience.

--Nancy Woods, vice-president & portfolio manager with RBC

What’s up in the days ahead

Dr. George Athanassakos will return with another stock pick from his value investing students.

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

More Globe Investor coverage

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For more Globe Investor stories, follow us on Twitter @globeinvestor

You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.

Compiled by Globe Investor Staff

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