Those investors who had been harbouring comfy thoughts that defensive sectors are a safe haven got a rude shock this week when two biggies in the consumer staples category, Colgate and Unilever, released nasty profit warnings. Evidently, tough competition from rivals and discounters are threatening margins. And trying to maintain market share requires the expenditure of plenty of coin on marketing costs, which weighs on the bottom line.

Well, yes, there are some structural challenges faced by the sector. But the problems aren't new and have been around for a number of years. If you are searching for growth stocks then, obviously, you shouldn't be looking at this category. The sector's specs are of a different order and, unsurprisingly, not all the fish in the pond are unappetising. Some companies have better business plans and prospects than others. A good selection of stocks with sound valuations in the consumer staples area has a role to play in a balanced portfolio.

This sort of grandmotherly talk may not go down too well with impatient traders. But in an economic downturn when markets become bearish you begin to appreciate some of the characteristics possessed by this group, such as relatively steady earnings and low correlation with the market.

Growth companies, too, face their own set of challenges. They have to keep up a cycle of innovation that helps to give them a competitive edge. If they fall behind in innovating, non-patented products are soon copied. And as for the off-patent stuff, it is readily mass-produced by generic manufacturers. Before long, the company becomes the purveyor of standardised low-margin goods - which is not the path to anticipated hefty earnings growth.

As we have mentioned a good many times previously, leading indicators are pointing to a growth slowdown in the global economy. This is true for all the major regions, with the main exception being China. There, activity has picked up again after showing earlier signs of winding down. While some people may interpret this as a welcome boost to global activity, in fact, it adds to the risk that the desired outcome of a soft landing may be compromised.

Chinese authorities cannot afford to let the economy overheat again and are willing to take tougher measures to ensure that investment spending is curbed and inflationary pressures are brought under control. However, in trying to achieve those aims we should expect a degree of bumpiness, as excesses and imbalances are corrected.

It is a tougher environment for profit growth, though it does not appear that signals from leading indicators, accompanied by corporate warnings, are being entirely heeded by the stock market. The overall mood is still fairly upbeat, and it is quite possible that current data releases may throw up one or two strong numbers that will fire up investors' imagination.

The bond market seems to be forecasting the outlook differently. It is interpreting the oil price rise as having a greater deflationary impact (i.e. slower activity) than an inflationary one (i.e. a rise in the general price level). On this score, they are in agreement with Greenspan's assessment. Where they part company, is over the likely strength of economic growth.

The decline in longer-maturity Treasury yields is signalling the market's collective view that the economic outlook is for greater weakness. Barring technical factors, why else would bond investors bid up the price of Treasuries in the face of a huge federal-government budget deficit and the expected large supply of new paper?

The Treasury yield curve, as represented by the two to ten year range, has undergone a bullish flattening. It will take some strong economic reports and not just ebullient talk from the Fed chairman for the market to reassess its views.