Inverse of 2022 so far

The market has has gotten off to a strong start. It's been the complete opposite of last year. Tech has leading the charge and the bond market is defiantly telling the Fed that it's going the wrong way. Last year at this time the market led by Tech sold off hard as the bond market front ran the Fed's rate hikes and sold off hard too. At this time last year, the Fed had acknowledged that it had to start raising rates, but it was slow in doing so. This time around they are digging in their heels with their "higher for longer" rhetoric. The bond market is signaling that it's just a question of when not if, the Fed is going to cut rates. The inverted yield curve has been a harbinger of a recession because it signals that interest rates are set to come down notably in the not too distant future due to sharply falling inflation which always happens as a result of a recession. But that doesn't necessarily have to be the outcome this time .given the unique circumstances of the inflation we've experienced. We can very well see inflation fall sharply not due to a recession but rather due to the subsiding of  one-off pandemic causes of inflation. Prior to the pandemic we didn't have an inflation problem and so we should go back to how it was prior to it. Now I do acknowledge  the pandemic did result in a surge of early retirements and disenfranchised workers and that may result in some structural inflation pressures longer term and so it won't be entirely the same as before, but overall it's looking pretty clear that the pandemic inflation was indeed largely transitory, it just simply lasted longer than the Fed thought it would and they capitulated on this view just prior to the worst of it. 

Coming into the year, the following was the consensus thinking. 

• Bad first half, good second half with lower low in market
• value over growth
• underweight tech
• higher for longer
• recession evident before end of year
• flat to modest gain in the market

I know it's very early but so far a lot of the consensus thinking is getting it wrong. There's an interesting breadth trust study making the rounds on twitter. It's called the Walter Deemer Breadth Thrust indictor which is flashing new bull market is underway. The last time this indicator gave a buy signal was in April 2020. It has a very impressive track record going back to the 1940s. The spring and summer rallies of last year produced false buy signals with other types of thrust/momentum indicators and so there's some skepticism about this WDB indicator, however, the WDB did not flash a buy in those 2 rallies. I believe a key reason why it's flashing buy this time is because we've seen a broad based participation in the upside this time around. I mentioned in my previous post that the charts of a lot of sub sectors were looking much better than what the major indexes were showing - the SPX and NAZ in particular. Would I hang my hat on this buy signal? No, but it's yet another clue to me that the bull case for 2023 is making sense. The WDB signal is coming at a time when we got very low expectations and much better market action than we've seen in quite a while. That's fertile conditions for a scalable wall of worry.  The market is now once again ST overbought though. If the bull market is truly underway, then any pullbacks from here should be shallow and the market will advance despite overbought conditions. That's typically what you see in the first leg of a new bull market. I will be watching closely to see if FOMO takes hold from the usual suspects. If so, then the buy signal, even if it does work eventually, may not work initially.