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We can’t make too much of one day’s results, but central bankers must have been ghoulishly pleased with Thursday’s equity market action. Weak U.S. economic data, lower commodity prices and falling bond yields are not widely considered positive because they highlight growing risks of a North American recession, but they also signal a potential easing in inflation pressure and a change in sector leadership.

Firstly, the monthly survey of U.S. manufacturers by the Institute of Supply Management showed much weaker activity than economists expected. The new orders component of the survey, the most forward-looking segment, fell into contractionary territory.

Copper and oil prices were down sharply on the day, a reflection of growing fears of an economic slowdown. The copper price, considered an effective gauge of global economic growth by many, is now more than 20 per cent lower than the peak in March.

Crude, while still elevated thanks to Russia’s invasion of the Ukraine, is more than US$13 lower from the June 8 high.

Bond yields are also pricing lower growth. The government of Canada five-year bond yield – an important determinant of domestic mortgage rates – fell from 3.33 per cent to 3.19 per cent on Thursday and is now 40 basis points off the June 14 high. (It was little changed on Friday.)

Importantly, global freight rates set another post-pandemic low Thursday. The Shanghai to Los Angeles Container Freight benchmark is 36 per cent lower than the peak in September, 2021. This suggests that inflationary supply chain disruptions are being addressed.

None of this is to suggest that the battle against inflation has been won. Labour markets remain strong and food and energy costs continue to stretch household budgets. For investors, however, we may be reaching an inflection point whereby lack of economic growth supersedes inflation as the primary concern.

I took a snapshot of S&P 500 sector performance around midday Thursday and it was a textbook reaction to slowdown fears. The most economically sensitive sectors – energy, materials, financials and industrials – were the worst performers, down between 1.5 per cent and 4.4 per cent. Defensive market sectors – utilities, consumer staples and health care – were higher by more than 1 per cent.

The market sectors that perform well in an overheating, inflationary economy are the exact opposite of those that outperform as growth slows.

Some of the relative sector performance reversed on Friday, but if it does become evident in the coming weeks that an inflection point has been reached, it will become obvious quickly. The economically sensitive sectors such as energy that have generated strong returns year-to-date would fall back in favour of those like utilities that do well as bond yields fall.

-- Scott Barlow, Globe and Mail market strategist

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The Rundown

Should investors be looking for discounted stocks as prices deflate?

Is the stock market now cheap? After the painful declines of the past few months, it may appear so. But appearances can be deceiving. A more realistic view is that Canadian and U.S. stocks have shaken off their pandemic-era silliness and are no longer trading at wildly inflated prices. They still have a way to go, though, before they become obvious bargains, reports Ian McGugan.

Also see: JP Morgan sees portfolio rebalancing lifting U.S. stocks 7% next week

Rising interest rates have brought back the 5 per cent GIC

We’ve hit a milestone in conservative investing – a 5 per cent return from guaranteed investment certificates. Oaken Financial, an online player in financials services, says it will offer 5 per cent for a five-year term starting Friday. The new rate for the one-year term seems a milestone as well: 4.05 per cent. Rob Carrick reports.

Energy investors have a new obstacle: Washington

Energy stocks have been caught in a downturn amid soaring inflation and a political desire within the White House to make oil and gas producers bend to consumer demand for cheaper fuel. Do investors need to pay more attention to Washington? David Berman shares some thoughts.

High energy prices could sink U.S. stocks during earnings season

Sky-high oil prices pose yet another obstacle to U.S. corporate earnings, and some on Wall Street are worried this could sink stock prices even deeper into the red. Big retailers Target Corp. and Walmart Inc. have already warned that oil prices are cutting into their bottom lines. Some investors worry that the impact of oil prices may not yet be fully reflected in analysts’ estimates of other companies’ earnings and could deliver stocks another blow if those estimates start to fall.

A Wealthsimple client reads the headlines and asks, ‘should we move our money?’

The financial headlines have got a Wealthsimple client worried. Not about falling stock and bond markets, or the impact of these declines on the registered retirement income fund and tax-free savings account Wealthsimple has managed for her and her spouse since 2018. No, what’s worrying this retiree are the headlines about Wealthsimple itself. Rob Carrick explains.

Reading the market tea-leaves for global recession risks

The fastest rate-hiking cycle in decades and inflation nearing double-digits has got investors scouring market moves and data to gauge whether the world economy is headed for recession. Business activity is slowing, many stock indexes are in “bear” territory, while higher borrowing costs are squeezing corporate and consumer spending. Here is what some closely watched indicators are saying about recession risks.

Also see: Markets not braced for Japanese, Swiss central bank liquidity drain

Others (for subscribers)

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

Number Cruncher: Nine U.S. snack-food stocks offering sustainable dividends

Number Cruncher: 12 outperforming TSX dividend stocks with low levels of ESG risk

Friday’s Insider Report: CEOs are buying these two dividend stocks

Thursday’s Insider Report: CEO invests $560,000 in this stock forecast to nearly double

Friday’s analyst upgrades and downgrades

Thursday’s analyst upgrades and downgrades

Globe Advisor

Investment industry’s traditional culture remains a barrier for LGBTQ advisors

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What’s up in the days ahead

John Heinzl writes an open letter to young investors. David Berman, meanwhile, looks at whether copper’s fall into a bear market this week means a buying opportunity given its future use in electrification. And Ian Brown wonders what the heck is going on with bond markets.

Goodbye turbulent H1 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