Article_Normal, N/A, Equity Markets, Commodity/Financial Market News, Analysts', Comments/Recommendations, Corporate/Industrial News, Equity Markets, Commodity, Financial Market News, Analysts', Comments

Article_Normal, N/A

There’s a danger in the disconnect between complacent markets and weak fundamentals, analyst warns

Mike Larson, senior analyst at Weiss Ratings, says he hasn’t seen markets this disconnected to reality in nearly a quarter-century.

6/3/2020 6:08:00 PM

Investors are flocking to the hard-hit cyclical sectors, including energy, industrials and materials. “It’s the biggest disconnect I can remember in the almost-quarter century I’ve been active in the markets,” said an analyst.

Mike Larson, senior analyst at Weiss Ratings, says he hasn’t seen markets this disconnected to reality in nearly a quarter-century.

Mike Larson, senior analyst at Weiss Ratings, said he has never seen anything like it.“It’s the biggest disconnect I can remember in the almost-quarter century I’ve been active in the markets,” he said. “I can’t recall a time when we’ve seen a large disconnect between, not just what’s going on in Main Street versus what’s going on in Wall Street, but what’s going on in the underlying fundamentals that would normally impact Wall Street.”

Michigan businesses will be required to refuse entry to people not wearing masks Dozens of Mississippi lawmakers have coronavirus after weeks of refusing to wear masks Instagram bans all content promoting conversion therapy

Larson said it’s unlikely a V-shaped recovery in the economy will take place. Even situations that previously caused markets to gyrate — like U.S.-China trade tensions — are now largely brushed aside. “We’re seeing a clear and an obvious breakdown in that relationship and yet the markets have hardly blinked.”

The markets also have ignored the protests over the police killing of George Floyd and ensuing violence that has gripped cities nationwide. “It’s hard as an American, much less as an analyst or investor, to look at what’s going on on Main Street in the last week, and believe that this isn’t going to have serious repercussions, or shouldn’t be having serious repercussions, in terms of risk appetite or the trajectory of any economic recovery and/or longer-term sort of impacts on society.”

The biggest dislocation he sees is in the high-yield, or junk bond JNK, +0.81%, segment of the market.“The instant the Fed began discussing buying and backstopping high-yield bonds, fallen angels and so on, through a couple of different means, we’ve seen enormous inflows into ETFs. We’ve seen enormous interest in buying the riskiest possible credits out there,” he said. Larson pointed out the Fed itself was warning about corporate lending less than half a year ago, as has the Federal Deposit Insurance Corp., the Bank for International Settlements and the International Monetary Fund.

But what about the move lower in interest rates, and the positive impact that has on valuations?“I understand completely when you’re discounting future cash flows back to the present, lower rates help, and that contributes to the there-is-no-alternative trade, so I get the other side of the trade, and it’s hard to lean too hard against it in the short term,” he said.

“But when you look at whether, ultimately, the credit quality and the underlying fundamentals are going to support the asset values, you have to use some extraordinarily generous economic assumptions, and assumptions about the vigor of this rebound, to get from point A to point B. I think that’s the real danger here — I think that there’s a lot of complacency on what liquidity can accomplish when it comes to fixing solvency-related and asset valuation-related excesses.”

He recommends having a defensive posture in portfolios. “That includes things like carrying more cash than you did prior to the first quarter of 2018, focusing on more yield-oriented defensive sectors than you would have from 2009 through 2018,” he said. On a three-to-five year basis, safer plays from gold to longer-term Treasurys have outperformed, with the one exception being the technology sector, he said.

Prominent Latino voices call for Goya Foods boycott after CEO praises Trump Trump's New Hampshire rally delayed because of expected thunderstorms Trump postpones New Hampshire rally over tropical storm

The buzzADP reported 2.76 million private-sector jobs were lost in May, compared to the nearly 20 million lost in April. At 10 a.m., the Institute for Supply Management nonmanufacturing index is due. The May China services purchasing managers index from Caixin rose to 55.5 from 44.4 in April.

Dr. Anthony Fauci, the White House health adviser, said he expects there to be hundreds of millions of doses for a vaccine for COVID-19 by the beginning of 2021. But he also said the vaccine might not provide long-term immunity.A day after warning states that he would use the military to quell protests, President Donald Trump appeared to be privately backing off his threat, the Associated Press reported. That came after a night of relative calm, with several cities under curfew.

Zoom Video Communications ZM, +4.99% late on Tuesday reported a growing profit on 169% revenue growth for the fiscal first quarter. Its free cash flow was an incredible 77% of revenue.Cheesecake Factory CAKE, +18.42% said sales at its restaurants that have reopened have recaptured 75% of prior-year sales on average.

Warner Music priced its initial public offering in the biggest IPO of the year.The marketsLooking positive yet again. U.S. stock futures ES00, +1.17% YM00, +1.59% are on the rise after gains in global markets.The dollar was lower against a number of currencies, notably the euro EURUSD, +0.51%, which pushed through $1.12 for the first time since the middle of March.

Oil CL.1, +0.19% futures turned lower on a report about OPEC possibly not meeting amid concerns over compliance with production cuts. Gold GC00, -2.04% futures fell.Random readsIbuprofen is being tested as a treatment for those hospitalized with coronavirus.

The last person to receive a Civil War pension has died.One dinosaur’s last meal was found preserved — 110 million years later. Read more: MarketWatch »

Mike Santoli's market notes: 'Reopening lottery ticket' stocks surge, corporate bond market hummingNew for subscribers: Mike Santoli's market notes: 'Reopening lottery ticket' stocks surge, corporate bond market humming Check out CNBCPro for a free trial. Pro Is there a maximum height for skyscrapers? The answer. Pro Mike Santoli is like Chinese food. It tastes good but you’re hungry 19 minutes later. He looks like JFK is quite eloquent and says nothing. He belongs in top 5 CNBC scams. The Najarian clowns are far and away number 1

Killer Mike Holds Call with Grassroots Leaders to Address Systemic RacismKiller Mike's hosting a meeting with grassroots leaders to highlight all the ways they're working to address systemic racism. Why’s he called Killer Mile.., well-done This man spits facts and saliva

Killer Mike Has 'Homework For All of White America': WatchKiller Mike appeared on &39;The Late Show With Stephen Colbert&39; on June 1 to speak about what white Americans can do to help the Black Lives Matter movement. Tend to your studies you must, if the level of Jedi Master you desire to reach. If you need a laugh watch this ChillzOnDaBeat Killer Mike is off the shits. Half this country doesn’t want justice for all

Killer Mike Holding Call with Grassroots Leaders to Address Systemic RacismKiller Mike's hosting a meeting with grassroots leaders to highlight all the ways they're working to address systemic racism. Invisible racism - perfect - he is talking about gangs No such thing as systemic racism .

Mike Santoli's market notes: Grab for beta, Robinhood traders causing froth?, tech topping outNew for subscribers: Mike Santoli's market notes: Grab for beta, Robinhood traders causing froth?, tech topping out Check out CNBCPro for a free trial. Pro That guy needs a proper, fitted mask Pro please notice the twitter handle on the sign..... also the person sharing the post on instagram who supports and promotes this Pro Mike, thanks for the info

Killer Mike Gives Voice to Righteous Rage, with Atlanta’s Mayor and in a Sneak-Leaked Run the Jewels TrackAs protests, chaos and police clashes engulfed the country over the last few days in response to the Minneapolis police killing of George Floyd, Atlanta rapper Killer Mike offered some of the most … Thank you for so many reasons This is the truth this is the repercussions this is the answer this is the solution this is the justice or at least this is the process This is the process