Hello!
Its duplicates MC-108. This behavior is known as quasi-connectivity (BUD effect). It is a long-standing mechanic in Minecraft Java Edition and is considered "Works as Intended" by the developers.
Also even if you're not standing in water if the sign is waterlogged you can see the text again.
Can confirm
This behavior occurs because of a technical desynchronization in the UI rendering:
Icon Movement Animation: Tied directly to game/client ticks (which are halted by the
/tick freezecommand).Color-Shifting Effect: Utilizes system time (likely
Util.getMillis()), meaning it continues to update independently of the game's frozen tick rate.