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There’s no sugarcoating this: things look bad for investors this week.

I wrote a column Wednesday featuring a surprisingly pessimistic global economic outlook from Merrill Lynch strategist Ajay Singh Kapur. Mr. Singh Kapur used strong language we’re used to seeing from hyperbolic finance blogs like Zero Hedge but not large research firms. The strategists’ strident prose started with the title of his research report, “Planet Earth to Policymakers: Please Reflate” – his forecasts are now so ominous that he is not only suggesting that central banks should stop monetary tightening, but they should reinstate stimulus.

How ominous are his projections? Mr. Singh Kapur believes that global economic expectations are reflected in prices for cyclical assets like copper, palladium, oil services stocks, and furniture and shipping stocks. His current assessment from these indicators is that global economic growth “is now in free-fall, signaling much weaker growth ahead.”

I wrote the column before Apple Inc. announced its first China-caused profit warning in two decades, and Thursday’s report on U.S. manufacturing indicated the biggest month-over-month decline since 2008.

The upcoming U.S. earnings season will be really, really important for all investors worldwide. Reported earnings growth results within range of current expectations will provide confidence that the post-crisis market rallies are merely undergoing a correction, and the next bear market is still a way off. Disappointing profit results would likely create considerable, painful volatility as the market re-prices assets for a lower future growth path.

Passive, long-term investors will of course just stay the course and ride this out. As for more tactical investors, I wouldn’t advise attempting to ‘catch a falling knife’ here – buying more equities in the hope that we’re close to a market bottom – until the global economic data stabilizes a bit. With market news flow this negative, it’s better to be late than early in putting more investment capital to work.

-- Scott Barlow, Globe and Mail market strategist

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Stocks to ponder

The Rundown

Investors face tough road ahead as top Wall Street economist warns global economic growth ‘now in free fall’

Fresh readings on the state of global manufacturing have heightened fears of an economic slowdown at a time when some prominent strategists are warning investors of increasingly difficult market conditions in the coming months. Merrill Lynch strategist Ajay Singh Kapur recently wrote that “global [economic] growth is now in a broad, deep and persistent slowdown,” creating market conditions that will make life treacherous for commodity sectors and beyond. Scott Barlow reports (for subscribers).

Take heart investors: Even the most clever of stock pickers had a losing strategy in 2018

It was the year when all the world’s top investing strategies fizzled. Take heart in that. Share owners who want to curse their bad choices in 2018 can derive at least a shred of comfort from realizing how widespread the misery was. Not only did every major market around the globe disappoint, but so did all the best researched ways of picking stocks. Value investors and momentum players both took a whipping. People who look for steady, stable stocks suffered, as did those who prefer to buy thinly traded shares. All these investing approaches – factors, in the jargon – have produced impressive results in the past. But not over the past year. It’s something to keep in mind as you open the year-end statements from your broker. Ian McGugan reports (for subscribers).

Canadian bank stocks have seldom looked this enticing

Add Canadian banks to the long list of stocks that delivered dismal returns in 2018. But some encouraging developments have emerged from the sell-off: Valuations are low and dividend yields have risen to 4.6 per cent on average, pointing to a good buying opportunity right now. David Berman reports (for subscribers).

Economists hit mark on outlook for last year, but stock-pickers' forecasts fall short

Economists, caught off guard by a robust Canadian economy in 2017, kept their forecasts solid but unspectacular for 2018 – and pretty much came in on target. Equity strategists, however, largely missed the mark as they predicted a year of solid but unspectacular gains in Canadian stocks – leaving most Canadians who shared that optimism poorer. These are the takeaways in our annual look back at predictions for Canada’s economy and markets. A year ago, Canadian economists were explaining how they’d underestimated the country’s consumers, who propped up the economy as they kept on spending. This year, they mostly reiterated their Goldilocks forecasts – not too hot, not too cold – and the economic numbers came in just right. David Milstead reports (for subscribers).

BMO chief investment strategist: Stock investors are in store for a very happy 2019

As an admitted and arduous proponent of U.S. stocks, BMO’s Brian Belski has been wrong for most of the fourth quarter of 2018 – and as such, exceedingly humbled. So what does he expect now for the coming year? Read Brian Belski’s view. (For subscribers).

David Rosenberg: Here’s how to increase your chances of financial success this coming year

David Rosenberg looks at the potential downside risks to Canada’s GDP in the coming year, and a few ways to make the most of the market in 2019 (for subscribers).

The yield curve is saying something significant about what’s ahead for markets in 2019

The U.S. yield curve is getting a lot of attention as a recession indicator but for investors, Scott Barlow thinks it’s more important as a predictor of market volatility. Volatility, as measured by the CBOE Volatility (VIX) Index, is a vital concept for equity investors. There have been brief periods such as the late 1990s when the S&P 500 and the VIX have risen at the same time, but rising volatility is usually associated with sustainably weak markets. In this sense, predicting the VIX provides guidance as to when to reduce portfolio risk. Scott Barlow takes a look at the charts (for subscribers).

Why 2019 could be a good year for dividend lovers

Let’s get the bad news out of the way first. Like the rest of the stock market, John Heinzl’s model Yield Hog Dividend Portfolio had a rocky year in 2018. As he was preparing to head off for the holidays, the model portfolio was down about 5.8 per cent for the year. Ouch. The good news? The portfolio’s loss, as measured through Dec. 21, was about half of the 11.5-per-cent drop for the S&P/TSX total return index. (All figures include dividends.) So, on a relative basis, he made out alright, he says. He has some words of encouragement for dividend investors this coming year. (For subscribers).

The worst is over for utilities. Here are three stocks to jump on

It was a mixed year for income investors. As rates rose in both Canada and the U.S., prices of interest-sensitive stocks declined and bond funds slipped in value. GIC investors gained ground, if only marginally. The big banks showed themselves to be more interested in widening their net interest margin than in increasing payments to investors, but rates have gradually edged higher recently. And, somewhat surprisingly, those holding units in real-estate investment trusts saw some modest gains during the year. Gordon Pape takes a look at three utilities stocks to watch (for subscribers).

What wealth advisers are telling their clients in preparation for 2019

Red might be associated with the holiday season, but this year it’s looking a bit less festive to investors. Stock markets are down, the Canadian dollar has dropped against its U.S. counterpart and Canada’s energy sector continues to struggle, pulling down the S&P/TSX Composite Index with it. Even gold, that safe-haven asset, has taken a hit and isn’t expected to bounce back until at least the middle of 2019, according to J.P. Morgan. Volatility is causing concern among all investors, including Canada’s wealthier, especially for those nearing retirement. Here’s what four wealth advisers are telling their clients. They also offer a few predictions for 2019 and advice for keeping sane in turbulent times. Kira Vermond reports.

Wealthsimple to launch mutual-fund investment firm with in-house advisers

Robo-adviser Wealthsimple Inc. is launching a mutual-fund investment firm with its own financial advisers in a move that takes it beyond its online-investing roots. The company is set to announce on Thursday the creation of Wealthsimple Advisor Services Inc. Registered with the Mutual Fund Dealers Association, the new firm will give MFDA-licensed advisers access to in-house services to run their independent businesses under the Wealthsimple banner, including portfolios that contain exchange-traded funds (ETFs), investments that have proven difficult for MFDA firms to purchase. Clare O’Hara reports (for subscribers).

Others (for subscribers)

Apple warns on weak China results. Who’s next?

Surging yen warns of a rocky road ahead for world markets

These 12 TSX dividend stocks satisfy a lower-volatility strategy

U.S. dividend stocks: Screen puts profitability front and centre

The year ahead looks promising for defence stocks

Investors are still cautiously optimistic about 2019. But here’s what could go wrong

Investing lessons for 2019 and beyond from the country’s biggest pension fund

Oil, bank stocks, the loonie and more: The major market moves to prepare for in the new year

Did the Federal Reserve create a market bubble? Most people have it all wrong

Oversupply, faltering growth to weigh on oil prices in 2019

Defensive stocks top 2019 U.S. playbooks

Yield Hog: John Heinzl’s model dividend growth portfolio as of Dec. 31, 2018

Fear drove down equity and commodity prices in 2018

‘At the end of that run, run for cover’: Eight views of the stock market in 2019

Thursday’s analyst upgrades and downgrades

Thursday’s Insider Report: Three high yielding securities that insiders are buying

Wednesday’s Insider Report: CEO invests over $1.9-million in this security yielding over 6%

Monday’s Insider Report: CEO invests over $1.3-million in this security yielding 8.6%

Others (for everyone)

Be cautious, wealthy investors – the art market could be in a bubble

Ask Globe Investor

Question: What asset distribution would you recommend for my wife and I? We are retired at the age of 65. Beyond Canada Pension Plan (CPP) and Old Age Security (OAS) we collect $1,800 per month in a pension and have $550,000 in registered retirement savings plan (RRSPs) plus $300,000 in cash savings.

Answer: At your age, the textbook formula is to err on the side of caution and protect your assets. That suggests an asset mix of 55 per cent to 65 per cent fixed income, 25 per cent to 35 per cent equities, and the balance in cash. Based on your question, you already have at least 35 per cent of your money in cash, so you’re really asking what to do with the RRSP investments.

The answer to that depends on your lifestyle and whether you are content with drawing down your cash balance if you need extra income. If you are okay with that, then I suggest that 70 per cent of your RRSP assets be invested in low-risk, income-generating securities. These would include preferred shares, real estate investment trusts (REITs), and blue-chip dividend paying stocks like banks and utilities. Invest the rest of the RRSP in fixed income securities.

Your total asset mix, including your cash holdings, would then be 45 per cent equities, almost 20 per cent fixed income, and about 35 per cent cash.

I would note that your cash is on the high side. You can get a better return on that money by investing all but the amount you’ll need over the next year in laddered GICs.

--Gordon Pape

Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.

What’s up in the days ahead

Apple’s cut in sales guidance has solidified an increasingly bearish view for markets and the global economy. While valuations may be looking quite attractive, investors should be warned: analysts are cutting their earnings estimates for the just concluded quarter and there are signs the slashing is about to pick up. David Berman will provide an analysis.

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

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Compiled by Gillian Livingston

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