By Michael Msika, Bloomberg Markets Live reporter and strategist

A months-long rally in European cyclicals has left some stocks looking outright expensive, raising risks for them as the earnings season is about to start.

Cyclical sectors such as autos, industrials and financials have beaten the overall market hands down so far this year, with a 9% gain. Since the end of October, the Stoxx 600 Cyclical index has added 26%, beating defensive sectors by nearly 20 percentage points. That’s put them into the danger zone for profit-taking, amid signs the group is hitting overbought levels.

JPMorgan strategist Mislav Matejka notes cyclicals have in fact outperformed defensives for 18 months and trade at a significant premium. Other than energy, which he sees as a good hedge against elevated geopolitical risk, Matejka is neutral or bearish on most cyclical shares. “Defensives could look better from here, especially if the overall market starts to weaken, and if earnings growth acceleration expectations do not materialize,” he says.

Not all cyclicals are in the same boat, though. Gains on energy and mining shares follow a long period of underperformance and are driven by geopolitics as well as a brightening world economy. Nor do share valuations seem excessive for commodities and banking shares.

This segment of cyclicals is likely to outperform, according to Goldman Sachs strategists Peter Oppenheimer and Sharon Bell. They recently upgraded banks and energy to overweight and miners to neutral. However, they cut their view on industrials, citing expensive valuations.

Trading at nearly 20 times forward earnings —  a 40% premium to the broader market and in the 90th percentile relative to their history — European industrials do look pricey. They also appear to have seriously overshot the recovery in PMIs — the last time the sector traded at such levels was just after the pandemic when European manufacturing was expanding rapidly. The fear is that companies pricing so much good news risk punishment if they disappoint in the upcoming earnings season.

Bank of America strategists are among those sticking to a very cautious stance. Wary of recent winners such as capital goods, BofA’s Sebastian Raedler sees scope for rotation into beaten-down defensives such as as food and beverages, though he remains overweight miners and chemicals. “Cyclicals overall are priced for sharp EPS upgrades,” he adds.

Cyclicals still have their fans, who point out the recent outperformance was driven by improved earnings estimates and that the overall group only trades at slightly above-average valuations compared with defensives. With interest-rate cuts due to kick off in the coming months, cyclical shares could enjoy further gains, many strategists, including at Barclays and Natixis, expect.

“Don’t fight the soft-landing narrative,” say Natixis strategists Florent Pochon and Emilie Tetard. They like European cyclicals tactically, in anticipation of a pick-up in European and Chinese economic growth, and the first European Central Bank rate cut in June.

Authored by Kevin Roberts and Robert Redfield via The Epoch Times (emphasis ours),

Four years have passed since the onset of COVID-19 and the global mishandling of its spread. Now, the same governments and international organizations that lied about the last pandemic are negotiating a new pandemic agreement and amendments to the International Health Regulations (IHR) at the World Health Organization (WHO).

The main culprit hasn’t changed. Although the Chinese Communist Party (CCP) has never been held accountable for its complete refusal to adhere to previous IHR agreements or its ongoing obstruction of a thorough investigation into the virus’s origins, Beijing is now collaborating with the Biden administration on this new accord.

So naturally, the new agreement advances China’s interests. Successive drafts focus on everything, from sending taxpayer dollars overseas to weakening intellectual property rights and empowering the WHO over the national sovereignty of the United States. Yes, that’s the same WHO that failed to insert a team of global experts in the first few weeks of the COVID-19 outbreak in China (as required by IHR), instead capitulating to the CCP and allowing it to define the international response.

The latest version of the agreement even mandates that parties provide financial and technical assistance to developing countries. Of course, the United States has a long, robust history of providing such assistance—President George W. Bush’s President’s Emergency Plan for AIDS Relief (PEPFAR) is one good example—but such assistance has always been voluntary, not obligatory.

Unsurprisingly, China stands to benefit from these provisions intended to help “poor” countries. Despite having the second-largest economy in the world, the United Nations considers China to be a “developing country.” That’s right. The country that started the COVID-19 pandemic will not only suffer zero consequences for its actions but, should the United States sign this agreement, stand to benefit from mandatory transfers of funds from U.S. taxpayers.

China would also benefit from other provisions in the agreement that push governments to promote “sustainable and geographically diversified production” of pandemic-related products (like vaccines), invest in developing country capacity and access to proprietary research, use the “flexibilities” of the Agreement on Trade-Related Aspects of Intellectual Property Rights to override patents, and encourage rights holders to forego or reduce royalties and consider time-bound waivers of intellectual property rights.

China, notorious for its theft of intellectual property, would be sure to exploit this privilege.

All this would severely curtail future investment in health research—exactly the opposite incentive that should be applied if we are to be prepared for a future pandemic. And to make matters worse, the agreement almost entirely ignores addressing the countless shortcomings of current international processes in responding to pandemics, such as obligating governments to grant immediate access to international health expert teams to assess the threat of suspected outbreaks and to provide full and timely disclosure of genomic data.

Of course, overseeing sustainable and geographically diversified production, massive transfers, and distribution of up to 20 percent of diagnostics, therapeutics, or vaccines during a pandemic comes with a hefty price tag. The exact amount is not specified, but it is sure to include several commas.

In addition, the agreement would take a sledgehammer to American First Amendment free speech rights. The willingness of governments to use the pandemic to clamp down on unpopular ideas and opinions to “protect” public health and safety has proven durable. And this new agreement instructs governments to “cooperate, in accordance with national law, in preventing misinformation and disinformation.” China and Russia need no encouragement to censor speech. However, such language in an international agreement will encourage those in free countries who similarly wish to suppress unpopular opinions under the guise of countering misinformation and disinformation.

Indeed, the WHO itself seems offended by criticism. Earlier this year, Director-General Tedros Adhanom Ghebreyesus said that negotiations were occurring in a very difficult environment, facing a “torrent of fake news, lies, and conspiracy theories.” Ironically, this argument was the same one used against conservatives who subscribed to the increasingly credible lab leak theory.

In short, the new pandemic agreement should alarm all Americans. It is far more focused on redistributing income, transferring technology, and weakening intellectual property than on preventing, detecting, and responding to pandemics in the first place. It failed to address the elephant in the room—the total lack of enforcement in the IHR—and as written, it is nothing short of a power grab by the CCP-controlled WHO.

Our government must wholly reject it.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times or ZeroHedge.