If we get a second round of inflation here, we’re likely to see a repeat of 2022 - growth, tech and tech-adjacent areas of the market turning into deep underperformers. There are a lot of risk factors in junk bonds that are likely to eventually hit and the fact that spreads are incredibly low at the moment only accentuates the downside risk. Lumber prices are continuing to hold up here, but so is gold.

While the current environment has been great if you’re overweight tech stocks, it’s been a very bad sign for overall market health. The market is pricing in a nearly best case scenario for junk bonds and the risk/reward tradeoff keeps looking worse. While a straight line rally in the dollar is unlikely to continue, it does seem likely that strength will remain with the greenback for a while.

Over the long-term, this could be a sign that the tech sector has tried to grow too far, too fast and now needs to unwind a bit. The housing market is effectively frozen right now, so we’re not getting adequate price discovery and China is still in the process of imploding. Utilities continue to get hit from two sides. The Fed’s insinuation that the street should expect a slower pace of rate cuts in 2024 wasn’t entirely surprising and it did place a drag on financials.