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Earnings reports Thursday should provide Canadian investors with a window into the investing future, pitting heavyweight counter-cyclical companies Loblaw Cos. Ltd.and Tim Hortons Inc. against heavily-traded miners Inmet Mining Corp. and Lundin Mining Corp..
Loblaw and Tim Hortons are considered counter-cyclical because their businesses are largely immune from economic slowdowns, so the stocks outperform when the domestic economy fades. Although more focused on the global, rather than domestic economy, the mining sector is the reverse. Mining stocks leap higher when the global economy booms, and comes crashing back to earth as activity fades.
Miners have been, well, a minefield for investors in recent weeks, as industry giants Rio Tinto and BHP Billiton have been forced to take multi-billion-dollar writedowns on assets, including Alcan, for which they overpaid in the pre-crisis period. A partial resurgence in the Chinese economy has not been enough to stop a 5.5-per-cent year-to-date slide for the S&P/TSX Diversified Mining Index.
Institutional investors will be watching Thursday's results carefully. Domestic manufacturing data last week has increased the risk that the Canadian economy is contracting. If Loblaw and Tim Hortons both exceed forecasts while Lundin and Inmet falter, this will motivate big managers to add to positions less sensitive to economic activity. The reverse case will deliver evidence that China's recovery, and possibly a resurgence in the U.S. housing market, is providing a tailwind for the resource sector.
Scott Barlow is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow Scott on Twitter at @SBarlow_ROB.