That thudding sound you hear is the sound of the global economy slowing down.
In the United States, growth has decelerated to a meager pace of around 1.5 per cent a year, according to IHS Markit surveys of purchasing managers published on Monday. In Europe, the same surveys indicate German factories are in deep recession while the overall Eurozone economy is barely growing at all.
In Canada, gross domestic product is likely to expand by only about 1.3 per cent this year, according to Bank of Canada estimates. Meanwhile, in China, industrial production grew at its slowest pace in 17 years in August.
No wonder so many investors feel uneasy. A recent survey of more than 200 of the world’s biggest asset managers by Absolute Strategy Research in London found they see a 52 per cent chance of a global recession next year. It is the first time since the survey began in 2014 that these well-informed money managers put the likelihood of a recession at more than 50 per cent.
The widespread pessimism among the smart-money crowd suggests that now is a good time to be cautious. But it is not exactly a flashing alarm. Despite their gloom on the state of the global economy, the respondents in the Absolute Strategy survey also said they expect stocks to perform better than bonds over the next year.
Their faith in stocks despite slowing growth is not as odd as it may seem. Most stock markets around the world now deliver substantially more in dividends than bonds pay out in yield. So long as companies continue to deliver those payouts, people have good reason to hold onto their shares.
Rather than running for shelter, investors may want to consider exactly how much volatility they can comfortably endure. The answer is likely to hinge on how you see three threats to investor confidence playing out over the next year.
Read the full column by Ian McGugan (for subscribers only)
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Stocks to ponder
Descartes Systems Group Donald Trump’s trade wars are roiling world markets and hurting the economies of both China and the United States. The tit-for-tat escalation of tariffs on both sides has disrupted long-standing supply chains and left businesses with international operations scrambling to find alternatives. But there are some companies that are actually prospering from all this chaos, and this is one of them, reports Gordon Pape.
Lightspeed POS This stock was featured in Jennifer Dowty’s breakouts report in April. Months later, the share price more than doubled in value, rising to a record closing high on Aug. 9. However, since then the share price has plunged 32 per cent. Last week, the company surfaced on the negative breakouts list (stocks with negative momentum) with the stock in correction territory. In recent weeks, cloud-based technology stocks have come under pressure with investors taking profits off the table. Read Jennifer’s latest profile and outlook for the stock.
Sierra Wireless This company seems to be in perpetual transition, always on the cusp of reaping great fortunes from the lofty potential of the “internet of things” (IOT), but never quite getting there. More than a decade after the company shifted into the technology enabling devices to communicate with each other, its shares hit a six-year low in August after a string of unprofitable quarters. On Monday, its stock, as a result of its diminished market value, was removed from the S&P/TSX Composite Index – the latest dubious milestone for the index’s worst-performing tech stock over the past five years. But should contrarian investors consider the name? Tim Shufelt reports on what the company is up to.
The Rundown
Others (for subscribers)
Monday’s analyst upgrades and downgrades
Monday’s Insider Report: Three dividend stocks that board members are buying
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Compiled by Globe Investor Staff