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It’s short and sweet, it’s about the market, and it’s sent out every market trading day. We usually throw in an interesting Insight or market observation. Make sure you’re subscribed to the Daily Market Brief.

Our newsletter is really good. We promise.

_You’re reading a brand new version of our massively popular Daily Brief. Your favorite sections on Leading Indicators, Earnings etc. will appear EVERY DAY. TOGGLE’s GPT-powered section will summarize market action. And for those in a hurry - the emoji in the subject tells you if the market is up  or down ._

**TLDR:** The distinction between a bear market and a bull market is pretty arbitrary: a 20% decline in a broad market index puts it into bearish territory. This was the story of major market indexes last year. A 33% drop in Nasdaq seemed driven by the most aggressive Fed hiking cycle in recent history. 2023 looks a lot more promising: January’s 10% rally has carried the index to down only 28% from the peak. But what has changed?

![stock market meme](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Untitled_design_1668d3e95a/Untitled_design_1668d3e95a.jpg)

Are investors betting on strong earnings to turn the tide? 

The Q4 earnings season has been … subpar, to put it mildly. Of the companies in the S&P 500, 69% have reported actual EPS above estimates, which is below the 5-year average of 77% [according to FactSet](https://insight.factset.com/sp-500-earnings-season-update-january-27-2023). 

The reactions to earnings announcements have been unusually muted. The average stock has gained 0.5% after reporting, below the five-year average of a 1% gain. However, double misses (EPS and sales) haven’t been punished as much, either. They’ve dropped 1.6% vs. the 2.9% average over the past five years.

If it isn’t earnings bailing out the market, the other culprit must be the Fed. 

A week ago, via the Wall Street Journal, the Fed telegraphed its intention to hike only 25 bps at this week’s meeting. This is a meaningful slowdown from the 75 bps pace we were on even two meetings ago. But - yawn - markets have been pricing it in for weeks.

The real tease in the Fed communication was the suggestion of a “pause” that could happen as soon as this spring. THAT could herald the end of the tightening cycle, and a betting race for the start of the easing cycle. 

If Fed hikes were to blame for tech’s demise, could a stop - and possible reversal - be the reason for its revival? 

Historical evidence on this is mixed. In the last two big booms that popped (2000 and 2008-09), the Fed started easing almost a year before markets put in a low. But the evidence from prior cycles - ‘84, ‘89, ‘95 -  suggests markets regained their stride in advance of Fed cuts. 

## The Market: What stocks are doing well today?

## TOGGLE Leading Indicators: Indicators tilt bearish

Our family of market leading indicators points to a bearish retracement. 
- 🔻TLI: began flashing red two weeks ago 
- 🔻Rangefinder Index: has been crossing below the 0.75 threshold repeatedly 
- ⬜ Peak Probability Indicator: still not active, nearing the 95% threshold
- 🔻Candle Breadth: reached the bearish threshold last week 
- ⬜ Market Phase Shift Indicator: still not active, this is a longer-term indicator

![rangefinder 013023](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/spx_ohlc_indicator_14_79cd9a60db/spx_ohlc_indicator_14_79cd9a60db.png)

## Upcoming Earnings: Exxon releases tomorrow

![xom earnings](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/xom_aaacf9562e/xom_aaacf9562e.png)

[Click here to test what to expect when XOM releases earnings tomorrow](https://toggle.ai/earnings/nyse-xom-2022-q4).

Discover how other companies could react post earnings with the help of [TOGGLE's WhatIF Earnings tool](https://toggle.ai/earnings)

## Asset Spotlight: Apple on the move

Market indicators for price pressures and inflation have substantially dropped and historically, [Apple often outperformed in this environment as investors begin betting on easier monetary policy](https://toggle.ai/article/45ada13d-a08a-11ed-89e6-f6fd646d7423).

![apple price chart](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Apple_history_3_30656c2fb8/Apple_history_3_30656c2fb8.png)

## General Interest: Curious about how GPT works?

If GPT feels like a quantum leap from the natural language generated by the neural networks of previous generations, it’s because it uses a different approach.

![chat gpt](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Picture1_ec744debbf/Picture1_ec744debbf.jpg)

The system that underpins GPT is known as a diffusion model and is heavily inspired by thermodynamics. 

Quanta Magazine, the excellent divulgative website sponsored by Jim Simons of Renaissance Technologies, provides a great explanation about how it all works.

[Read more here](https://www.quantamagazine.org/the-physics-principle-that-inspired-modern-ai-art-20230105/).

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Daily Brief - 🌩️ Tech stocks escape Bear claws?

**The 10 days ahead: TOGGLE Leading Indicator**

The TLI is the aggregate of all TOGGLE Insights, leading the markets by 10 trading days. 
Check it out [live on the web](www.toggle.ai/my-toggle)! 

Below you will find our new statistical analysis of the performance of the TLI, which we will be using for all our indicators going forward.

![tli locked 012723](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/spx_classic_tli_PUBLISH_1_147a813b9f/spx_classic_tli_PUBLISH_1_147a813b9f.png)
_Click the image to enlarge_

Learn more about the TLI through the [TLI video](https://www.youtube.com/watch?v=hsLeahGewrc) or our [Learn Center](https://toggle.ai/investing)!

**General Interest - Get ready for Google’s response to ChatGPT**

When ChatGPT came out in November of last year, it took the world by storm and was promptly baptized as the “Google killer”.

Naturally Google was bound to answer.

![deepmind ai](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Screen_Shot_2023_01_27_at_8_33_22_AM_c039469b32/Screen_Shot_2023_01_27_at_8_33_22_AM_c039469b32.png)

DeepMind, Google’s acquisition from 2014, is spearheading the effort with Sparrow - their own assistant technology which is alleged to go to beta late this year.

Read more [here](https://www.independent.co.uk/tech/deepmind-ai-chatbot-chatgpt-openai-b2262862.html).


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Friday Edition! (Jan 27 2023)

**TLDR:** Tesla made more money in 2022 than ever before, but its future still looks rocky. In the past it would have rallied 10%+ on a solid earning release, whereas now it’s flat. On other topics, The Rock is an expert in inflation.

![rock inflation expert](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Screen_Shot_2023_01_26_at_7_34_11_AM_a89728eb88/Screen_Shot_2023_01_26_at_7_34_11_AM_a89728eb88.png)

**TSLA is flat on strong revenues**

Tesla CEO Elon Musk has said that the company could sell as many as 2m cars this year after it dramatically cut prices across its portfolio to prioritise expansion of its customer base at the short-term expense of margins.

The company reported record revenues of $24.3bn for the December quarter, up 37% from the previous year. However, Tesla's automotive gross margins shrunk during the quarter to 25.9%, down nearly 5 percentage points from a year ago. 

Remarkably, the stock was up small on the day - compare that with its [historical performance on a beat.](https://toggle.ai/earnings/nasdaq-tsla-2022-q4)

**Status of the Leading Indicators**

It’s all red markers. The TLI 🔻usually moves ahead of all other indicators, printing bearish 10 days ago. It was followed by RangeFinder 🔻printing bearish yesterday. And recently the Peak Probability Index reached is heading towards a high (in fact, its mirror index **Trough Probability** 🔻has already printed at an extreme low level).

![trough index](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/spx_countdown_trough_probability_2_b5e853d434/spx_countdown_trough_probability_2_b5e853d434.png)

## Idea Spotlight: MGM

$MGM is already up +16% over the past month and given its [trailing P/B ratio rose to 3.18](https://toggle.ai/article/89d0d824-9d40-11ed-ab79-6afc3a261542), TOGGLE observes that this historically led to further upside over a 6M horizon. 

What could drive this rally? Check out this [Forbes article](https://www.forbes.com/sites/greatspeculations/2023/01/26/up-16-over-the-past-month-whats-next-for-mgm-stock/) for more!

![mgm stock](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/MGM_Resorts_history_772b243329/MGM_Resorts_history_772b243329.png)

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Daily Brief - 🌩️TSLA earnings?

**TLDR:** Microsoft gave a downbeat outlook based on signs of weak cloud demand. Will this be a bellwether for the rest of the earnings season?

![msft earnings meme](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Screen_Shot_2023_01_25_at_8_30_44_AM_2bd9f9806c/Screen_Shot_2023_01_25_at_8_30_44_AM_2bd9f9806c.png)

**Forward will drive the market**

As we discussed last week, forward guidance will drive the market. MSFT came fairly in line with earnings - but reported that demand for cloud services fell noticeably during December as customers grew more cautious in the face of the economic slowdown. 

This led to a downbeat forecast for the current quarter and a 1% drop in Microsoft’s shares in after-market trading. 

The company projected revenue would hit $50.5bn-$51.5bn in the current quarter, about $1.5bn below analysts’ forecasts and an increase of only 3% from the year before. 

Microsoft's CEO, Satya Nadella, said customers were working to “optimize” their spending on existing contracts, and there would be a “lag” before they started to increase spending on their next cloud projects.

**Status of the Leading Indicators**

The TLI usually moves ahead of all other indicators, printing bearish 10 days ago. It was followed by RangeFinder printing bearish at the end of last week. Now we watch the Peak Probability Index head towards its threshold. 

![peak indicator 012523](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/spx_countdown_peak_probability_2_756f42617b/spx_countdown_peak_probability_2_756f42617b.png)

## Idea Spotlight: Intel

Intel shows [weak business performance and earnings growth](https://toggle.ai/article/1e53b5fc-9c77-11ed-8be5-f693cfa21627) that suggests that historically, the downside for the company's outlook may have been fully priced and any incremental positive news could see the stock price rise.

Expecting positive news from Intel? Surprisingly the stock has fallen after beating EPS expectations. [Check out WhatIF below](https://toggle.ai/earnings/nasdaq-intc-2022-q4)!

![intc earnings beat](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/intc_55ba403dff/intc_55ba403dff.png)



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Daily Brief - 🌩️ MSFT earnings cloud markets

**TLDR:** By now, forecasting a serious economic slowdown in 2023 has lost all shock value. Everyone’s expecting it. Bring up a challenging year ahead at your aunt’s weekly backgammon game and it’s “Oh, yeah, you’re talking about THE recession, right?” It’s like when you go to sleep after a raucous night and you just know a hangover is inevitable no matter how much water you chug the night before. But what if it is avoidable (the recession, not the hangover)?

![recession meme](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Screen_Shot_2023_01_24_at_8_15_14_AM_96f5ace8c2/Screen_Shot_2023_01_24_at_8_15_14_AM_96f5ace8c2.png)

To be the Michael Jordan of policymaking, a rate-hiking Fed Chairman and his team will aspire to a soft landing. This phenomenon is so rare it requires merely a single feat to qualify as the GOAT of central banking. And Jerome Powell’s odds seem to be improving.

The key to this outcome? The labor market.

Going all the way back to 1949, according to Fed’s data, there have been only 3 soft landings when Fed was hiking rates, and they all share one characteristic: the unemployment rate didn’t rise much, if at all. 

In the three instances - 1964, 1984, and 1993-95 - the unemployment rate actually dropped each time. In contrast, bad recessions resulted whenever unemployment rose by more than half a percentage point from the low.

The Fed has a forward looking indicator based on this principle: the Sahm Rule recession indicator. As you can see below, it’s been quite accurate and - at the moment - is showing no chance of a recession in 2023. 

![recession indicator](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Screen_Shot_2023_01_24_at_8_15_26_AM_0e6da6c4fa/Screen_Shot_2023_01_24_at_8_15_26_AM_0e6da6c4fa.png)

In fact, Powell’s chances to enter the Central Banking Hall of Fame are looking brighter by the day as the unemployment rate putters around the lows.  

## Idea Spotlight: Netflix

Macroeconomic conditions (activity and inflation gauges) have deteriorated substantially.

However, Netflix often outperformed in this environment as expectations for policy easing and macro outlook brighten.

[Click to read the full insight](https://toggle.ai/article/c4c3af4c-9bae-11ed-92e5-f659decc4024)!

![nflx price history](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Netflix_history_2_f8f0d73638/Netflix_history_2_f8f0d73638.png)


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Daily Brief - What if there is no recession?

**TLDR:** The lady doth protest too much. That, in a nutshell, was the market's reaction to weeks of Fed’s hawkish commentary designed to convince the market it would absolutely not cut rates this year. Not a single Fed official thought a rate cut in 2023 would happen, according to the latest meeting minutes. One [abysmal retail sales number later](https://www.wsj.com/articles/us-economy-retail-sales-december-2022-11673990047), the tune is definitely changing. This isn’t entirely surprising, 

A neat chart below from strategists at Goldman Sachs shows that Central Banks - in the US and elsewhere - pretty much lose all appetite for further hikes right around inflation peaks. This, more or less, is where we are today in the US. 

![central bank stops hiking when inflation peaks](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Screen_Shot_2023_01_23_at_8_11_30_AM_6fc98042ba/Screen_Shot_2023_01_23_at_8_11_30_AM_6fc98042ba.png)
_Source: Goldman Sachs_

So it’s no surprise that over the weekend, the Federal Reserve telegraphed it another downshift in pace of hikes - and maybe a pause! 

To preserve a degree of mystique in this tweet-crazy world, in an almost quaint tradition the Fed still handpicks a news outlet to communicate such market guidance over the weekend. And thus an [article in the WSJ](https://www.wsj.com/articles/fed-sets-course-for-milder-interest-rate-rise-in-february-11674362567?mod=hp_lead_pos1) reassured the readers - over a cup of Sunday morning coffee, minds likely on the evening’s Cowboys game - that the Fed was ready to downshift rate hiking pace. Again. 

But it went further. They hinted at contemplating a pause in the very near term. 

None of this will come as a surprise to fixed income traders. They have already priced a 25 bps hike with near certainty - 99% based on the futures pricing. However, it may embolden investors into thinking that officials are starting to come round to a far more dovish view. 

Markets are making a far bigger bet that the Fed will also come round to their view on when to cut rates: later this year! As apparent from the chart below, the US central bank is usually on hold for only about 7 months before cutting rates. 

![central bank cuts rates ](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Screen_Shot_2023_01_23_at_8_11_39_AM_08a5ca012e/Screen_Shot_2023_01_23_at_8_11_39_AM_08a5ca012e.png)

**Does this mean a rate cut in 2023?**
 
![im so excited](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Screen_Shot_2023_01_23_at_8_11_53_AM_ac1aa2fe70/Screen_Shot_2023_01_23_at_8_11_53_AM_ac1aa2fe70.png)

If the last hike does come in Q1, we could be looking at rate cuts as soon as October. Markets are starting to suspect that could well be the central event of 2023.

## Idea Spotlight: Etsy

[Realized volatility](https://toggle.ai/investing/technical-indicators/realized-volatility) is a measure of the average size of the returns offered by a security in a determined period. 

Historically when realized volatility for Etsy has fallen, this has led to a median increase in the stock price.

[Click here to view the full insight](https://toggle.ai/article/dc51ac33-9ade-11ed-8a73-c65dbb287747)! 

![etsy price history](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Etsy_history_c3463cfcf1/Etsy_history_c3463cfcf1.png)


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Daily Brief - Fed rate cuts in 2023?

**The 10 days ahead: TOGGLE Leading Indicator**

The TLI is the aggregate of all TOGGLE Insights, leading the markets by 10 trading days. 
Check it out [live on the web](www.toggle.ai/my-toggle)! 

Below you will find our new statistical analysis of the performance of the TLI, which we will be using for all our indicators going forward.

![tli 012023](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/spx_classic_tli_PUBLISH_1f62caa739/spx_classic_tli_PUBLISH_1f62caa739.png)
_Click the image to enlarge_

Learn more about the TLI through the [TLI video](https://www.youtube.com/watch?v=hsLeahGewrc) or our [Learn Center](https://toggle.ai/investing)!

**General Interest - A great piece on Musk @ Twitter**

You’ve possibly seen this image in the media recently:

![musk ai generated image](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Screen_Shot_2023_01_20_at_8_30_27_AM_f7e87a183c/Screen_Shot_2023_01_20_at_8_30_27_AM_f7e87a183c.png)

It comes from a [fantastic long piece](https://www.theverge.com/23551060/elon-musk-twitter-takeover-layoffs-workplace-salute-emoji) The Verge put out on Elon’s tenure at Twitter.

From his imperious style, to the pivots in management decision, to the public doxxing of former employees, to Twittergate, to blocking the account that tracked his plane, the piece sheds light on Musk’s circus and the most turbulent corporate affair of 2022.

Read more [here](https://www.theverge.com/23551060/elon-musk-twitter-takeover-layoffs-workplace-salute-emoji]).


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Friday Edition! (Jan 20 2023) 

**TLDR**: Have you checked out our fantastic new Earnings Season widget? Also, Elon is probably selling more TSLA

![whatif earnings](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/image_106_51d201aca8/image_106_51d201aca8.png)
_[Click to open](https://toggle.ai/earnings)_

**Earnings and Tesla**

As we mentioned last week, leading indicators of growth are collapsing. So what can we expect from company earnings releases? A lot of misses, presumably.

Cue WhatIf, our new Earnings Season tool which will let you analyze the response of companies to beats and misses. Click on the image below to give it a spin!

Meanwhile, Twitter’s first interest payment is coming due. Luckily Elon has promised not to sell any more TSLA stock…right?

![elon musk tweet](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/image_107_4d95f6687e/image_107_4d95f6687e.png)

**Status of the Leading Indicators**

We’re restructuring the Leading Indicators section to include it on a daily basis, focusing on the most pivotal indicator for the day.

The TLI usually moves ahead of all other indicators, and it printed bearish during last week. As of yesterday also RangeFinder posted a reversion indication. 

![rangefinder 011923](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/spx_ohlc_indicator_12_0ac3760ab6/spx_ohlc_indicator_12_0ac3760ab6.png)

## Idea Spotlight: Bitcoin

Up ~25% YTD, TOGGLE observed an improvement in on-chain metric indicators (specifically, market cap and transaction count) for Bitcoin, which historically led to a further rise in price. 

In other news, early crypto investor Peter Thiel no longer has significant exposure to Bitcoin. 

![bitcoin price chart](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Bitcoin_history_e4983d4c59/Bitcoin_history_e4983d4c59.png)


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Daily Brief - Elon would not…

**TLDR:** If leading indicators are correct, forward guidance will be rocky in the upcoming earnings season. And S&P 500 still trades at 17 P/E.

![earnings season meme](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/image_103_ad527d11d3/image_103_ad527d11d3.png)

**Watch out for forward guidance** 

_TLDR: With leading indicators collapsing, forward guidance could rock markets this quarter._

The bulk of earnings releases for Q4’22 lies ahead of us and promises to be full of drama.

Last year ended on a positive note, with hopes of milder inflation and a pivoting Fed - however investors will focus on forward guidance and that might prove ambivalent.

![earnings season ](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/image_105_4509d2c8d8/image_105_4509d2c8d8.png)

With growth and new orders collapsing across the US and other major economies, this earnings season could be the reckoning moment - the moment when the market realises 17x P/E on S&P 500 might be rich.

Also, remember that for consumers inflation seems far from peaking…

![average price of eggs](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/image_104_dc0d741ba9/image_104_dc0d741ba9.png)

**Status of the Leading Indicators**

_We’re restructuring the Leading Indicators section to include it on a daily basis, focusing on the most pivotal indicator for the day._

The TLI usually moves ahead of all other indicators, and it printed bearish during last week. As markets trace higher, we’re watching the Peak Probability Index head towards its threshold. 

![tli 011723](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/spx_classic_tli_1_c4cbd4d375/spx_classic_tli_1_c4cbd4d375.png)

## Idea Spotlight: Netflix

Seasonality is the study of the performance of a security during a certain period of the year. TOGGLE observed that [Netflix exhibits positive seasonality over the next 1M horizon](https://toggle.ai/article/e7804134-9329-11ed-889c-c65dbb287747). 

With its earnings around the corner, TOGGLE's latest [WhatIF Earnings tool](https://toggle.ai/earnings/nasdaq-nflx-2022-q4) can help you understand how Netflix stock typically performs after an EPS beat or miss. Check it out below! 

![nflx what if earnings](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Screen_Shot_2023_01_18_at_8_38_04_AM_702dcc1bf2/Screen_Shot_2023_01_18_at_8_38_04_AM_702dcc1bf2.png)
