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Wednesday’s report on domestic retail sales wasn’t quite as terrible as the top line number looked, but the results still might indicate that the Canadian economy contracted in November.

National Bank economist Jocelyn Paquet notes that the bulk of the decline in retail sales – they came in at -9.0 per cent month over month when a drop of 0.6 per cent was expected – was the result of volatile gasoline and auto sales numbers. However, the data were negative for six of 11 major categories.

“Canadian November GDP [is] tracking -0.2 per cent: the broad-based nature of the slump is a cause for concern. Sales did indeed retrace at gasoline stations and auto dealers, but they also dropped in four other categories, representing 37.5 per cent of total outlays. What’s more, retail volumes fell for the fifth time in the last six months, perhaps a sign that Canadian consumers may be negatively impacted by higher interest rates. For the month of November, declining volumes could translate into a negative contribution to GDP," the National Bank economist said.

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BMO economist Doug Porter noted that in light of solid population growth, the retail sales data are even more alarming.

“With interest rate hikes and other measures weighing on housing and big-ticket spending, real retail sales have in fact slipped into reverse in the past year. After a near-6-per-cent surge in 2017, sales volumes were barely above water for all of 2018, and were down year over year in the fourth quarter. Given strong population growth rates, that means spending per person is falling fast.”

November is only one month, and consensus estimates still point to a solid 1.9-per-cent economic expansion for 2019. Economic momentum, though, is certainly pointed in the wrong direction right now.

As far as portfolio implications, investors should take a close look at current holdings with substantial exposure to domestic consumer spending with an eye to reducing their weightings. The silver lining to a weakening economic outlook is that the Bank of Canada is likely on hold in terms of raising interest rates for as long as the trend lasts, and this makes fixed income and financially healthy dividend-paying investments more attractive.

-- 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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Maxar Technologies Ltd. (MAXR-T; MAXR-N). Canadian shareholders didn’t find it so easy to sell Maxar Technologies Ltd. earlier this month, even as the stock plummeted. However, it wasn’t a question of loyalty to the company once known as MacDonald Dettwiler & Associates Ltd., a stalwart of the country’s technology industry. Instead, thanks to a quirk of a seemingly minor corporate transaction, the company’s Canadian stockholders possessed no shares to sell over two trading days when investors punished Maxar. To place a successful “sell” order those two days, a Canadian Maxar shareholder likely required extra help from their brokerage. David Milstead explains the unusual situation (for subscribers).

The Rundown

Why investing in the Canadian stock market is riskier than you think

Canada – yes, boring, stable Canada – may be riskier than you think. Our home and native land leads the world on some recent measures of investing hazard, according to an analysis by Aswath Damodaran, a professor of finance at New York University. Notably, Canada is now No. 1 when it comes to the percentage of money-losing companies on its public markets. To be sure, this outburst of red ink reflects the large number of junior miners and small energy outfits on Canadian exchanges, as well as the more recent profusion of startup pot producers. It doesn’t mean that the country’s big banks or telecom providers have suddenly become dicey ventures. Ian McGugan looks at the numbers (for subscribers).

Short sales on the TSX: What bearish investors are betting against

Stock markets are rallying strongly in January. Which Canadian stocks are attracting substantial short interest during this bullish upswing? Such bearish bets are exhibiting a high degree of conviction that shouldn’t be dismissed lightly by shareholders in the targeted companies. Laurentian Bank of Canada tops the table for the fourth month in a row and has a short position that is at its highest level. Laurentian Bank’s workforce is unionized, and management is trying to reach an agreement with the union to provide more online services to customers. Just about every other bank in North America is non-unionized and so has greater flexibility in pursuing growth opportunities. Larry MacDonald looks at the stocks being shorted (for subscribers).

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Fifty stocks with pricing power that should outperform in a slowing economy

One way for investors to seek refuge in a jittery stock market is to focus on companies that can impose their wills on customers. Tobias Levkovich, an equity strategist at Citigroup, published a list of 50 such U.S. businesses in a note on Tuesday. In the opinion of Citi analysts, each of these enterprises is well positioned to raise prices for its products or services. Ian McGugan takes a look at these 50 stocks.

Three top REIT ETFs for Canadian investors

REITs have done surprisingly well over the past year, despite the drag of rising interest rates. Over the 12 months to Jan. 18, the S&P/TSX Capped REIT Index rose 5.5 per cent. Compare that with a decline of 6 per cent in the TSX Composite. That’s an outperformance of 11.5 percentage points. Gordon Pape takes a look at three top REITS that he recommends for investors (for subscribers).

Moderate-risk stock picks for a TFSA

The tax-free savings account (TFSA) is better than ever now that its annual maximum contribution has increased to $6,000 this year, from $5,500 in 2018. Accordingly, the lifetime contribution limit rises to $63,500. That’s a sizable chunk of capital in your portfolio. While the TFSA’s key advantage is tax-free growth and withdrawals, this account is also flexible. Investors can use it for short- or long-term purposes, and they have plenty of investing options, which can help them cope with a challenging, volatile market. Joel Schlesinger explains five moderate-risk investments you could choose if you have $6,000 to invest in your TFSA today.

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How some Canadian ETF investors got clipped last year by using hedging

The book on protecting your U.S.-stock returns against currency fluctuations is that a hands-off approach is best if you plan to stay invested for 10 or more years. But as the past year has shown, the short-term differences between owning a hedged U.S. equity ETF and an unhedged fund can be large. The S&P 500 index had a weak year in 2018, losing 4.4 per cent on a total-return basis. That’s by and large your result if you own an exchange-traded fund that tracks the S&P 500 and uses hedging to limit the impact of currency fluctuations on returns to investors. An unhedged U.S. equity ETF, with returns translated into Canadian dollars, made 4.2 per cent last year. Quite the difference, right? A fairly good gain versus a fairly annoying loss. Tempted to base your hedging strategy for 2019 on what happened in 2018? Careful, now. In early 2019, the Canadian dollar has made up some ground on its U.S. counterpart. If this keeps up, hedged U.S. equity ETFs will outperform. Rob Carrick reports (for subscribers).

Others (for subscribers)

Canadian household spending ‘falling fast’ as higher rates bite

Bono’s new venture takes aim at ‘fuzzy thinking’ in impact investing

Looking for portfolio safety and value in 2019? Start with the past year’s dogs

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Thursday’s Insider Report: CEO invests over $170,000 in this stock nearing oversold levels

Wednesday’s Insider Report: Strategic investor sells $11-million of stock in this marijuana company

Thursday’s analyst upgrades and downgrades

Ask Globe Investor

Question: I would like to compare my portfolio’s performance with the total return of the S&P/TSX Composite Index. Where can I find this information?

Answer: When the financial media report the performance of the S&P/TSX Composite Index, you’re only getting part of story. That’s because the benchmark index is based on price changes alone and doesn’t include dividends. To get a complete picture, you need to look at the S&P/TSX Total-Return Index, which includes dividends and assumes they’re reinvested along the way.

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One place to find the S&P/TSX Total-Return Index is Investing.com (use the ticker: TRGSPTSE). You can create a chart or look up historical values for the index and punch them into your calculator to determine percentage changes over various time periods. For instance, I calculated that the total-return index posted a loss of 8.89 per cent in 2018, compared with a drop of 11.6 per cent for the plain-vanilla S&P/TSX Composite. The difference reflects the contribution of dividends to the index’s total return.

Another way to find the total return of the S&P/TSX Composite Index is to look up performance data for an index-tracking exchange-traded fund such as the iShares Core S&P/TSX Capped Composite Index ETF (XIC). On the iShares Canada website, XIC’s 2018 total return is listed as negative 8.83 per cent, and the total return of the S&P/TSX Capped Composite Index – the ETF’s benchmark – is shown as a negative 8.89 per cent, which matches the performance of the total-return index based on Investing.com’s data.

--John Heinzl

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

Domestic investors have every right to be nervous about the upcoming TSX profit reporting season as U.S. earnings results pour in at mediocre levels. In an effort to help investors hoping to sidestep the American profit slowdown, Scott Barlow goes hunting for Canadian stocks with the strongest earnings trends and attractive valuations.

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

More Globe Investor coverage

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

Click here share your view of our newsletter and give us your suggestions.

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

Compiled by Gillian Livingston

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