Analysts, pundits, and Central Bankers are mostly right when it comes to economic issues, growth, and inflation. However, their models do not include a pandemic or war. As such, most estimates and projections during the past several months may be treated with skepticism.

Just 1 week into 2022 and something interesting is happening. The rotation we have been witnessing for some time now has accelerated. While financial sites report a rotation from growth to value, I see it as an exodos from ultra-high valuation stocks to something else.

As we ended 2021, the talk of the town was inflation. While Central Banks, especially in the US, think inflation will eventually come down, the new language in “Fed-speak” does not encompass the term “transitory” anymore. The Fed is now a headwind for markets.

One of the main characteristics of the current investment environment is the extreme concentration of a meg-cap stocks in ETFs and funds as a result of ETF investing.

If one looks at consumer sentiment vs the major US indices over a very long period of time, they will notice that they are correlated. That is until recently. The chart below depicts divergence unlike anything we have seen before.

The chart below comes to us from the IMF. In short, it is depicting the supply chain turmoil around the world and how it is impacting delivery times. A reading above 50 indicates faster delivery times and a reading below 50, slower delivery times.

While on the surface it seems that markets are doing just fine, there has been a lot of damage done when looking under the surface of the major indices. To begin with, the S&P 500 is not the 500 anymore, but more like the S&P 7. This because the first 7 largest companies of the index comprise over 30% of the market cap of the index.

Finally, we have headline scares out of China. Earlier this week markets were spooked about the possible default of the world’s most indebted developer, which is none other China’s Evergrande Group.