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Equity markets have remained surprisingly strong despite data showing a significant deceleration in global economic growth. Citi global strategist Robert Buckland discussed the importance of weaker economic data for equity investors in PMIs rolling over: Equity implications published Wednesday. In short, Mr. Buckland advises investors to prepare for a stock market correction, and then buy the dip.

PMIs refers to purchasing manager indexes, monthly surveys of major global manufacturing companies regarding month over month changes in business activity, staffing and new orders. The survey is structured so that a reading above 50 indicates growth relative to the previous month.

The slowdown has been particularly acute in the U.S. where the manufacturing PMI has dropped from March’s 64.7 to 59.50. In China, the world’s second largest economy, PMI peaked in November at 52.1 and is now barely positive at 50.4.

Mr. Buckland is surprised at the S&P 500′s continued strength since the PMI peak, noting that historical patterns imply an equity correction of between 10 and 15 per cent.

Importantly, while the PMI suggest a higher likelihood of a pullback, buying the dip has previously been a lucrative strategy for investors at this stage of the market cycle. “If economies continue to recover (PMIs stay above 50) then the bull market soon resumes,” Mr. Buckland writes, “Investors should buy into any dip associated with the initial PMI roll-over.”

He goes on to note, however, that adding equities becomes dangerous should a slowdown materialize that sees major PMIs fall below 50.

-- Scott Barlow, Globe and Mail market strategist

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The Rundown

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After summer of stock market highs, signs of unease emerge

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Also see:

TSX seen extending its record-setting rally in 2022: poll

Wall Street’s pandemic rally to sputter, strategists warn in new poll

Funds trim hawkish Fed bets as Jackson Hole looms


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What’s up in the days ahead

Rob Carrick will take a closer look at how the elimination of trading commissions by National Bank’s online brokerage affects investors.

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Compiled by Globe Investor Staff