It’s Wall Street’s version of an irresistible force pushing against an immovable object. Those ushering in a new bull run in stocks that are historically undefeated have some statistical signals to back their calls. Others insist that a recession certainly awaits in the coming months, with never-failing indicators to bolster their stance. And if recession-forecasting “rules” hold as they have, last October will also be the first time for this cycle to serve as an index low, given that a recession-related bear market has never happened before a recession begins. hasn’t come down. Tape readers’ arsenal of bullish signals includes trend corrections as well as the relatively rare market-wide readings registered from the previous month. Sure enough, the 50-day moving average of the S&P 500 crossed above its 200-day, a positive though not flawless input. But at the same time, a very specific set of breadth conditions that qualify as “breakaway momentum” was triggered. Ned Davis Research has a volume-based tracker of equity supply and demand that demand outpaced supply this month. This has happened only five times since 1981 when supplies have been in effect for at least four months. After each of the five prior periods, the S&P was up three, six, 12 and 24 months later. And the index was up more than 5% in January this year. In each year that stocks posted at least that much January gain after the previous year’s decline (five times since 1954), the market continued to gain in the new calendar year with above-average returns. These sound like generally encouraging data points, though perhaps drawn a bit too narrowly and subject to the distortions of small sample sizes and technical quirks. Recession Indicators Confident recession predictors have been able to contend with deeply negative 3-month to 10-year Treasury yield curves, something that has always been followed by an official recession—albeit sometimes with a one-year lag. Together. The Conference Board’s leading economic indicators have fallen well below the range that firmly held them prior to the pre-recession. And a survey of senior Federal Reserve lending officials shows that the net percentage of those seeking tightening lending standards is likewise in a sector that has never failed to give way to recession. The lag between such signals and the onset of an economic downturn can be long enough—long enough, in fact, and as my friend and colleague Kelly Evans describes it—to generate calls for a “soft landing” on consumer spending and economic growth. Job growth has substantial real-time strength. Here in his newsletter. Warren Pai, founder of macro shop 3Fourteen Research, grapples with this apparent conflict between the cardinal rules “don’t fight the tape” and “don’t fight the fade.” He finds reason to discount the bullish technical signals left by the recent rally mainly because the Fed is still tight, and bear markets between rate-hike campaigns have not ended in history. Here he shows the difference in the performance of the S&P 500 when the S&P 500 pushes above its 200-day average based on whether the Fed is easing policy or not. A clear divergence though it is also worth noting that even when the Fed was hiking or pausing, the index on average continued to make modest upside progress. Which side is correct? Here are some ways to reconcile the conflicting messages. For one thing, this cycle has been unusual in a lot of respects — a late-cycle economy forced to stop in early 2020, a “flash recession” followed by massive stimulus to support spending and keep companies unaffected . An inflationary blow that prompted one of the most transparently aggressive Fed tightening initiatives in history. Consumer debt obligations remain low compared to history; What layoffs look and feel like in goods-producing industries is largely a tendency to generalize. The market has also followed an unusual rhythm. While it is true that the bear market did not end while the Fed was still hawkish, it is also true that the S&P 500 suffered a 27% blowout last year that began – unusually – before the first hike and while corporate Profits were still at a high level. record highs, and the first inversion in advance of the Treasury yield curve. A strange, scrambled sequence of macro-market interplay. It is wiser to keep an open mind about the end results and set risk-return expectations with wider bands. Yes, the stock market is a complex mechanism which eventually gives results secretly and over a period of time. It’s not like there’s a definitive result waiting to be discovered and priced. It is a dynamic, unknowable future. For now, macro data is running a bit hot, a thaw and — who knows? – Maybe a bullish phase for stocks that is later tested as bearish forces or an increasingly assertive Fed tests it. Sure, corporate-credit isn’t sounding any alarms yet, with triple-B-rated bond spreads on Treasury yields looking tame. They have made rapid highs for at least a few months prior to the downturn. Citi strategists point out that earnings and revenue forecasts are being revised lower at a slower pace by analysts, which means the reduction in profit forecasts may be over for now. Valuations and high bond yields prevent Citi from believing there’s much upside for the S&P 500 from here, but it could mean fundamental support isn’t eroding quickly anymore. Meanwhile, FactSet reports that this reporting season, companies have rewarded their shares above estimates, roughly in line with the five-year average. And yet: “Companies that reported a negative earnings surprise for Q4 2022 saw an average price decrease of -0.4% two days before the earnings release and two days after their earnings release. This percentage decrease is 5.” Much lower than the year’s average price. A decrease of -2.2% for companies reporting a negative earnings surprise during the same window.” A sign that 2022 as a whole has done a good job of smoothing out the weaknesses and dampening expectations for what’s to come? There’s a lot to chew on for both the recent market breakout and skeptics who see just another bear market rebound that has gone so far on false hope and false investors. The past week was inconclusive in settling the debate, though action was generally benign: a choppy 1.1% pullback from short-term overbought perch in the S&P 500, even as Alphabet’s market value tumbled $100. loss of more than billion; AAII retail-investor sentiment tilting towards optimism but only after a record-long stretch of bearishness; Treasury yields move higher with the CPI report coming on Tuesday, but with a fair amount if index hedging underway in preparation for a potential shock.