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Need to Know: The market’s trading like it’s the end of the cycle, and here’s how an analyst says to position for it

Tesla is TSLA, +13.73%parabolic. The yield on the benchmark 10-year Treasury note TMUBMUSD10Y, +3.07%, even before the coronavirus outbreak, couldn’t top 2%, and the yield curve even when it isn’t inverted has been very flat.

Commercial construction has tapered off. Vehicle sales have peaked. Banks plan to tighten lending standards at the same time as they expect a flattening of demand, according to a survey released this week. Even those loss-making initial public offerings, or near IPOs in the case of real-estate company WeWork, are starting to run a tighter ship.

Over two years, zero-coupon Treasurys EDV, -2.01% have produced nearly double the return of the S&P 500 SPY, +1.52%.

“It is the type of stuff you see at the end of credit and economic cycles,” says Mike Larson, senior analyst at Weiss Ratings. “I am concerned about the durability of this market and economic expansion.” He is dismissive of the three interest-rate cuts from the Federal Reserve, calling them both too late and too timid to make a major difference, though he concedes the housing market has stabilized in response.

Data through the end of January.

Larson says over two years, “boring” stocks like utilities, real-estate investment trusts and consumer staples have done well, and in the call of the day he expects those sectors to continue to perform, even if they are overbought in the short term. Larson says these sectors offer high dividend yields and protection from economic weakness—even if talking about utilities may put you to sleep.

He also likes precious metals, including gold GC00, +0.11% and silver SI00, +0.22%. “Metals sat out most of the bull market, there’s catch-up potential there,” he says.

The buzz

Traders took an optimistic view toward the coronavirus, which has killed 494 as of Thursday morning from nearly 25,000 confirmed cases, on reports from China and the U.K. on progress toward treating it. A World Health Organization spokesman said there’s no known therapeutics so far against the virus.

If you missed the State of the Union—U.S. President Donald Trump didn’t shake House Speaker Nancy Pelosi’s hand, Pelosi tore up the speech, and cancer-stricken radio-talk-show host Rush Limbaugh received the Presidential Medal of Freedom (the nation’s highest civilian honor). The speech itself focused on the economy and recent trade agreements. Trump is expected to be cleared by the Senate of impeachment on Wednesday.

Earnings season continues with 16 S&P 500 firms reporting results. Late on Tuesday, Walt Disney DIS, +2.41% exceeded forecasts on subscriber growth for its streaming service, while car maker Ford Motor Company F, +2.23% missed expectations as volumes fell and costs rose.

ADP reported a stronger-than-forecast 291,000 increase in private-sector jobs in January. Also on tap will be the nonmanufacturing index by the Institute for Supply Management.

The markets

It was full risk-on mode for markets—U.S. stock futures ES00, +0.74% rallied, and crude-oil CL.1, +2.68% and copper HG00, +1.67% futures gained.

The yield on the 10-year Treasury rose 5 basis points.

Asian ADOW, +0.71% and European SXXP, +1.22% stocks rose.

Random reads

A man stood up on board a flight from Toronto to Jamaica and said that he had coronavirus, forcing the plane to turn around. He didn’t and was arrested.

Actress and television host Whoopi Goldberg is out of the cannabis business.

A crime was solved using DNA profiling—on a cow.

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