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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.

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

The TLI is now [live on the web](https://toggle.ai/my-toggle?utm_source=tli_button)! 

The TLI’s continued to successfully provide an indication of market direction during July - in spite of volatility around the Fed - as shown in the chart below.

Recently the TOGGLE Leading Indicator dipped into negative territory to -0.19, pointing to the risk of a drop in the market - especially after the recent rally.

![tli simple](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/aggregate_toggle_signals_spx_6_7_8_stars_simple_4_150697e24d/aggregate_toggle_signals_spx_6_7_8_stars_simple_4_150697e24d.png)

To learn more about the indicator and its track record, watch our [Guide to TLI video here](https://www.youtube.com/watch?v=NgAt2JHbNsA) and [read it here](https://toggle.ai/investing/guide-to-toggle/toggle-leading-indicator).

And for those looking for accuracy analytics, here’s our statistical assessment for the TLI:

![tli accuracy](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/aggregate_toggle_signals_spx_6_7_8_stars_7_a130c6ec1a/aggregate_toggle_signals_spx_6_7_8_stars_7_a130c6ec1a.png)

**General Interest - The one in which NASA and Pentagon admit the existence of UFOs**
_Every week we endeavour to bring you one high quality article post of general interest_

![aliens](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/image_18_6ed89ea4f3/image_18_6ed89ea4f3.png)
_[Print of the Nuremberg celestial phenomenon of 1561](https://en.wikipedia.org/wiki/1561_celestial_phenomenon_over_Nuremberg)_

In a [2021 seminal report](https://www.dni.gov/files/ODNI/documents/assessments/Prelimary-Assessment-UAP-20210625.pdf) the Pentagon acknowledged being aware of _Unidentified Aerial Phenomena_ - quoting 18 specific incidents in recent years. 

In May of this year the Department of Defense upped the ante and [admitted](https://www.reuters.com/world/us/us-congress-panel-hold-first-ufo-hearings-half-century-2022-05-17/) they had been gathering evidence of more than 400 UAP cases. 

Senior Defense official Ronald Moultrie stood before a House of Representatives intelligence subcommittee recently to discuss the report.

For context, this was the first public U.S. congressional hearing on the subject of UFOs in a half century:

"_We know that our service members have encountered unidentified aerial phenomena, and because UAP pose potential flight safety and general security risks, we are committed to a focused effort to determine their origins_" said Moultrie.

In June, NASA followed suit and [announced it would launch a task force to study UAPs](https://www.reuters.com/lifestyle/science/nasa-form-scientific-team-study-ufos-2022-06-09/).

Both DoD and NASA are adamant that there is **no evidence that these UAPs are of extraterrestrial origin**. But one can wonder.

In 1960 astrophysicist Ronald N. Bracewell wrote a paper arguing that the most economical way for an advanced civilization to visit us would be to send robotic proxies. 

These interstellar scouts would come to be known as [Bracewell Probes](https://en.wikipedia.org/wiki/Bracewell_probe) and would inform science fiction writers for decades. In more recent years, the idea gathered new interest. 

Just like we sent the Voyager probes flying to the borders of the solar system, an advanced civilization could seed their stellar neighbourhood with robotic probes to gain insights into their next-door civilizations.

The idea is fascinating. If an extraterrestrial probe was discovered watching us from far orbit, what would our reaction be?

Read more [here](https://www.scientificamerican.com/article/a-possible-link-between-oumuamua-and-unidentified-aerial-phenomena/).

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Friday Edition! (Aug 5 2022)

**TLDR**

New low for ISM New Orders PMI confirms the slowdown is accelerating. Equity holders beware.

![ism pmis](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/image_15_3bccb050c7/image_15_3bccb050c7.png)

**The chart of the week**

ISM’s leading survey of [New Order PMIs](https://toggle.ai/investing/economic-indicators/ism-purchasing-managers-index-pmi#:~:text=developing%20economic%20trends.-,New%20Orders%20PMIs,-New%20Orders%20PMIs) has made a new low to 48 (from 49.6 last month). 

The survey asks companies if new business is better or worse than last month. When the indicator is below 50, the majority of companies are seeing business worse than last month.

Those cases when the indicator stays below 50 for several months are usually associated with an economic slowdown (you can see all past cases since 1988 in the chart above).

It’s fair to expect SPX earnings to follow suit.

**So why is the market rallying?**

[Large short positions](https://toggle.ai/analyze/spx/spx.futures_positioning?view=chart) are being squeezed, especially since the Fed came out less hawkish than expected. Furthermore investors are loading again into oversold Tech stocks.

**What does the TOGGLE Market Checklist have to say?**

**The good**: Positioning is squarely negative in futures, making a new low at -30%. We think we already have had a bit of a squeeze, but as long as positioning is short we at least be safe from risks of sharp drawdowns due to overcrowded longs.

**The bad**: **a)** New Order PMIs are in negative territory for two quarters in a row. **b)** SPX earnings appear to be retreating. **c)** SPX P/E is back at 17.28x (so much for our hope to see it fall towards 12x!). And **d)** seasonality is fairly neutral from August to October.

**Upcoming**: You know the drill by now. First PMIs, then CPI. Inflation comes out on Aug 10th. Stay tuned.

## Idea Spotlight: JPMorgan

[Technical Analysis indicators for Credit Suisse reached a recent low](https://toggle.ai/article/c950adfa-13ad-11ed-8546-864e5f814e17) and historically, this led to a median increase in JPMorgan price of 16.27% over the following 6M. TOGGLE analyzed 13 similar occasions in the past to produce the median projection and this insight received 6 out of 8 stars in our quality assessment.
 
JPMorgan Chase & Co.’s Marko Kolanovic is emerging as one of the very few bulls among Wall Street’s top strategists saying [US stocks will rally in the second half](https://www.bloomberg.com/news/articles/2022-08-02/jpmorgan-s-kolanovic-says-peak-investor-hawkishness-is-now-over).

![jpmorgan price history](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/JP_Morgan_history_e6a4309674/JP_Morgan_history_e6a4309674.png)

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Daily Brief - Here comes the slowdown: negative PMIs for 2 months in a row

**TLDR**

Investors - particularly in retail - are reloading on Tech stocks. This might show a change in how Big Tech is perceived.

![net purchases among retail investors](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/image_14_7f84258d36/image_14_7f84258d36.png)
_[Source WSJ](https://www.wsj.com/articles/individual-investors-ramp-up-bets-on-tech-stocks-11659221897?st=jts1n6wfv1o7cap&reflink=article_email_share)_

**Why are retail investors buying again into tech stocks?**

For one, **the sector was considerably oversold**. Last June 16th both SPX and Nasdaq traded at their lows for the year. With some portions of the tech space in bear market since 2021, the sector offered a compelling entry point.

Secondly, a narrative emerged that **the Fed might be slowing down its hiking pace**, which made everyone more relaxed about the fact that we might - just - avoid a recession in the style of Volker.

**But there’s more…**

However, something else is happening in the perception of Big Tech. Big Tech might begin to look more and more like a _**safe bet**_. 

Google, Apple, Microsoft and Amazon manage a considerable portion of our tech infrastructure. If you were to pull the plug out of Big Tech, society would come to a standstill.

Maybe 20 years ago Walmart was the safe choice if you were worried about a downturn. Or maybe you would turn to utilities or energy. Recession or not, we need to eat, rent and turn on the lightbulbs. 

But now Big Tech has become so pervasive that some investors believe it might be the safe choice. Google & co are infrastructure plays that are here to stay.

**Conclusion**

As discussed several times in our asset allocation pieces, the role of Big Tech in your portfolio is shifting.

Big Tech could become the core of a new [Nifty Fifty](https://www.investopedia.com/terms/n/niftyfifty.asp) group of large caps that are well funded and poised to do well in a higher-rate environment.

## Idea Spotlight: Comcast

[Price level indicators for CMCSA:NASD dropped abruptly to 37.68](https://toggle.ai/article/84380f9f-12f4-11ed-983c-569b8fa2d3c4) and historically, this led to a median increase in price of 18.77% over the following 1M. TOGGLE analyzed 14 similar occasions in the past to produce the median projection and this insight received 6 out of 8 stars in our quality assessment.

In the wake of negative broadband subscriber growth at Comcast Corp. last week, [a Barclays analyst downgraded CMCSA to equal weight from overweight](https://www.marketwatch.com/story/comcast-charter-stocks-downgraded-as-barclays-says-companies-are-likely-past-peak-growth-11659361451).

![comcast price history](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Comcast_history_32f063de01/Comcast_history_32f063de01.png)




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Daily Brief - Why are investors reloading on Tech stocks?

**TL;DR**

Yes, or no? At some point or another, regular readers of this newsletter were probably engaged in this discussion: was June 16 the end of the Bear Market? Inflation is rolling over. Well, at least core inflation might be, excluding stuff that’s actually going up in price like food and fuel …. Supply chains are getting sorted out. Investor sentiment is awful, say the bulls. Let’s play along. If the bear market did in fact end in June, what stocks do best around market bottoms?

**The final Bear growl?**

Assuming that the Bear is gone and the market low has been put in place is a big leap of faith. There are at least a few key ingredients - laid out in our earlier Daily Brief as the Bear Market checklist - that are still missing: 
1. Typically, a bear market would last 10-12 months - it’s only been six thus far
2. A top-to-bottom correction is usually 36% - we have managed just under 24% in this one (S&P 500)
3. Equities often retest the lows - that has yet to happen
4. Lacking one or two big 10-1 up days where 90% of the volume is buying vs. selling

Be that as it may, it doesn’t hurt to go through the hypothetical exercise anyway. What if …

**Do try this at home!**

To do this, we take a look at past bear markets over the past 20+ years. For anyone reading this, you can definitely “try this at home” - just use the TOGGLE Scenario tool to test performance of individual stocks around major market lows. 

Carmax, for example, turns out to have done incredibly well early once a new bull market kicked off. Its “week 1” median return is 20%+.

![carmax scenario ](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Screen_Shot_2022_08_02_at_8_15_48_AM_f28f88849f/Screen_Shot_2022_08_02_at_8_15_48_AM_f28f88849f.png)

The stock was up a scarcely believable 90% six months after a bear market ended in the last 20 years.

![distribution carmax](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Screen_Shot_2022_08_02_at_8_16_02_AM_e4eec22d66/Screen_Shot_2022_08_02_at_8_16_02_AM_e4eec22d66.png)

**The winners**

Running this exercise for every stock in the S&P 500, here are the stocks that had the **best performance in the first month after the bear market ended**. The Performance column reflects median performance (i.e. in at least half the cases, performance was that or higher) while the Confidence Interval shows 

![bear market winners](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Screen_Shot_2022_08_02_at_8_16_14_AM_0eb0039c23/Screen_Shot_2022_08_02_at_8_16_14_AM_0eb0039c23.png)

Encouragingly, it’s a mix of sectors: financials, tech, consumer stocks … If you are not looking to bet on just a single stock or a sector, creating baskets like this one can be a good way to supercharge the rebound bet while still diversifying enough to protect the downside. In fact, beyond a certain point the benefits of diversification for the purpose of reducing portfolio volatility start diminishing quite rapidly. Ray Dalio at Bridgewater has made that point quite forcefully on several occasions. (The chart below is from [an article on Intrinsic Investing](https://intrinsicinvesting.com/2016/12/01/excessive-diversification-is-pointless-damages-returns/), and articulates this idea far more elegantly.)

![benefits of diversification decay quickly](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Screen_Shot_2022_08_02_at_8_16_38_AM_94be99ce62/Screen_Shot_2022_08_02_at_8_16_38_AM_94be99ce62.png)

In conclusion, we won’t know for some time whether the Bear market is over - we think not, see above - but it’s never too early to start kicking around some ideas for the “bull market” trades and build your watchlist.

## Idea Spotlight: Amazon

[Volume analysis indicators for AMZN:NASD have been mostly positive](https://toggle.ai/article/8ba39db8-1231-11ed-b122-864e5f814e17) and historically, this led to a median increase in price of 21.73% over the following 3M. TOGGLE analyzed 16 similar occasions in the past to produce the median projection and this insight received 6 out of 8 stars in our quality assessment.

Amazon's 20-for-1 stock split in early June didn't really provide a catalyst for the stock but is the [split finally starting to pay off](https://www.fool.com/investing/2022/08/02/is-amazons-stock-split-starting-to-pay-off/)? 

![amazon price history ](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Amazon_history_1cde303b81/Amazon_history_1cde303b81.png)


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Daily Brief - Which stocks rebound first?

**TL;DR**

It’s official: last week’s data showed the US registered two consecutive quarters of negative growth. In popular telling, this means the economy has tipped into a recession. Has it really? The official determination of whether America is in recession is made by the Cambridge, Massachusetts-based National Bureau for Economic Research, and so far they aren’t calling it. Definitions aside, is the downturn here?

The economic contraction comes as the Federal Reserve tightens policy to rein in inflation. The declines in business and residential investment in particular likely reflect the impact of higher interest rates.

![real gdp ](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Screen_Shot_2022_08_01_at_8_08_20_AM_d16eefcfdc/Screen_Shot_2022_08_01_at_8_08_20_AM_d16eefcfdc.png)

While much of the first-quarter weakness was due to one-off factors (a surge in imports and a decline in the pace of inventory restocking), second quarter weakness is broader-based. The slowdowns in consumer spending, housing and business investment show the economy is clearly retrenching in the face of higher interest rates. The economy is definitely losing steam.

**Feeling blue**

Consumers, in particular, are feeling the pain. Evidence shows consumer sentiment is quite gloomy. A confidence measure published by the Conference Board showed that consumer confidence has fallen to its lowest since the COVID pandemic doldrums. 

Another popular gauge, University of Michigan consumer sentiment, is also at levels not seen in 20+ years and far below the last three recessions.

![consumer sentiment](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Screen_Shot_2022_08_01_at_8_08_32_AM_db15870052/Screen_Shot_2022_08_01_at_8_08_32_AM_db15870052.png)

**Yes, but …**

Although there is no denying the doom and gloom amongst the American public, there is a notable difference in the driver of the negative sentiment this time around. The recent sharp increase in the share who say the economy is their top issue instead reflects concerns about inflation as well as uncertainty about future growth. In contrast, previous concerns revolved around employment and the labor market. 

**Why are company profits still strong?**

In the face of rising rates, and 40-year highs in inflation, corporate optimism may seem at odds with facts. But earnings tell a story that other data doesn’t. So far, with roughly half of earnings seasons over, there hasn’t been much evidence that the economy is entering a big crack up. Virtually no CEO talked about doing mass layoffs on earnings calls.

This is also why NBER hasn’t called it a recession. As Treasury Secretary Janet Yellen recently said, a recession consists of “substantial job losses and mass lay-offs, businesses shutting down, private-sector activity slowing considerably, family budgets under immense strain. In sum, a broad-based weakening of our economy.” 

We are not there yet.

## Idea Spotlight: Apple

[Equity yield indicators for AAPL:NASD dropped](https://toggle.ai/article/f5fb36eb-1161-11ed-81f2-569b8fa2d3c4) and historically, this led to a median increase in price of 20.75% over the following 3M. TOGGLE analyzed 7 similar occasions in the past to produce the median projection and this insight received 6 out of 8 stars in our quality assessment.

After reporting record revenues last week, analysts are summing up Apple's earnings in one word - [resilient](https://www.marketwatch.com/story/apple-earnings-can-be-summed-up-in-one-word-11659093222). 

![apple price history ](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Apple_history_1_2e4eed9fcc/Apple_history_1_2e4eed9fcc.png)


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Daily Brief - So, are we in a recession?

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

The TLI is now [live on the web](https://toggle.ai/my-toggle?utm_source=tli_button)! 

The TLI’s continued to successfully provide an indication of market direction during July, as you can see below.

Recently the index dipped into negative territory, staying right below the -0.15 threshold. 

_Please note this happened in concomitance with the Fed’s most recent announcement and that external macro factors can override fundamental considerations for a while._

![tli july 29 2022](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/aggregate_toggle_signals_spx_6_7_8_stars_simple_2_665fbbdb90/aggregate_toggle_signals_spx_6_7_8_stars_simple_2_665fbbdb90.png)

To learn more about the indicator and its track record, watch our [Guide to TLI video here](https://youtu.be/hsLeahGewrc) and [read it here](https://toggle.ai/investing/guide-to-toggle/toggle-leading-indicator).

And for those looking for accuracy analytics, here’s our statistical assessment for the TLI:

![tli assessment july 29](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/aggregate_toggle_signals_spx_6_7_8_stars_4_f4d07ac127/aggregate_toggle_signals_spx_6_7_8_stars_4_f4d07ac127.png)


**General Interest - The wondrous creations of DALL·E**
_Every week we endeavour to bring you one high quality article post of general interest_

[DALL·E](https://openai.com/blog/dall-e/) is a neural network that creates images from text captions. 

You provide a prompt like “man wearing white shirt and eating an apple” and it creates pictures of a man doing just that. Or a painting in the style of Monet, if you prefer. The software is hailed as the first step towards the generation of complex content by AI.

DALL·E’s results are unequivocally astounding and we wanted to take a moment to show you some examples.

A capybara at sunset in ukiyo-e style

![capybara](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/image_11_199c3f5f4d/image_11_199c3f5f4d.png)

A pentagonal green clock

![clock](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/image_9_6f907f4fcc/image_9_6f907f4fcc.png)

A stained glass-window image of a strawberry

![painting](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/image_10_ba5e097d48/image_10_ba5e097d48.png)

Discover more examples in the official gallery [here](https://openai.com/blog/dall-e/). Or you can play with a simplified free version [here](https://www.craiyon.com/).


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The Friday Edition (July 29 2022)

**TLDR**

The Fed stated the pace of hiking might slow going forward. Combined with generally cheaper markets, this underpins the Q3 rally hypothesis.

However, the removal of forward guidance will make for volatile markets in the future.

**The Fed did what?**

That was a masterful Fed meeting. 

The Fed all but whispered “it likely will become appropriate to slow the pace of increases” and all the market heard was “yo we’re done hiking”. Cue subsequent 2% rally.

Meanwhile the Fed and the ECB also announced they are killing forward guidance, a hallowed tradition for 40 years now.

Why? Because they can’t seem to gauge the economic environment and they wish to maintain the ability to adjust. Makes sense. 

However this will compound market volatility. Investors will have less guidance by which to anchor their expectations on future policy. Each meeting might bring unexpected shifts in policy. Welcome back the Fed Watchers of yore!

**Chart of the week** 

Bitcoin supply is dropping to all-time lows, offering another element in support of the thesis that risk assets can rally in Q3.

![puell multiple](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/image_7_2d9886d412/image_7_2d9886d412.png)

The Puell Ratio compares today’s supply of Bitcoin to last year’s average. Low values mean there’s little Bitcoin on offer - and usually provide support for prices.

Bitcoin is not anymore decoupled from other risk assets, and a stabilization of the main cryptocurrency might help risk markets stage a rally going forward.


**The TOGGLE Market Checklist**

**The good**: Positioning is squarely negative in futures at -27%, building up support for a nice squeeze up down the line. 

**The bad**: New Order PMIs are in negative territory yet SPX earnings are untouched. EPS contraction is now a serious risk on the horizon. Also P/E rallied to 17x and Equity Risk Premium retraced up to 3.15%% (we were hoping for it to march to 4%). And we don’t like how seasonality is heading towards a sideways/bearish phase.

**Upcoming**: With the Fed out of the way, we go back to basics: wait for PMIs next week.

![checklist 07282022](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/image_8_ab23112bdb/image_8_ab23112bdb.png)

**Show me the data**

Here are the links to all the data points discussed above:
- Growth. [US Citi Economic Surprises](https://toggle.ai/chart/us/us.cesi) 		**/** [Learn ↗](https://toggle.ai/investing/economic-indicators/citi-economic-surprises)
- Growth. [US ISM New Orders](https://toggle.ai/chart/us/us.pmi_new_orders.manufacturing.ism) 	**/**	[Learn ↗](https://toggle.ai/investing/economic-indicators/us-ism-manufacturing-new-orders-pmi)
- Inflation. [US Citi Inflation Surprises](https://toggle.ai/chart/us/us.cisi) 		**/**[Learn ↗](https://toggle.ai/investing/economic-indicators/citi-inflation-surprises)
- Earnings. [SPX Forward Earnings](https://toggle.ai/chart/spx/spx.ibes_eps_forward_12m.ds_ibes) **/**	[Learn ↗](https://toggle.ai/investing/fundamental-valuation-indicators/earnings-eps)
- Valuations. [SPX Forward P/E](https://toggle.ai/chart/spx/spx.pe_ibes_forward_12m) 	**/**	[Learn ↗](https://toggle.ai/investing/fundamental-valuation-ratios/valuation) 
- Valuations. [SPX Equity Risk Premium](https://toggle.ai/chart/spx/spx.erp_ibes_forward_12m) **/**	[Learn ↗](https://toggle.ai/investing/fundamental-valuation-indicators/equity-risk-premium) 
- Positioning. [SPX Positioning](https://toggle.ai/chart/spx/spx.futures_positioning) 	**/**	[Learn ↗](https://toggle.ai/investing/common-investment-concepts/positioning-analysis)
- Seasonality. [SPX Seasonality next 3M](https://toggle.ai/analyze/spx/spx.fair_value_seasonality(years=5,fcst_horiz=3m)?view=chart) **/**	[Learn ↗](https://toggle.ai/investing/technical-indicators/seasonality-indicator)

## Idea Spotlight: United Airlines

[Valuation indicators for UAL:NASD have been mostly positive](https://toggle.ai/article/67576604-0e2e-11ed-b372-2aeb30e57af2) and historically, this led to a median increase in price of 4.86% over the following 2W. TOGGLE analyzed 4 similar occasions in the past to produce the median projection and this insight received 6 out of 8 stars in our quality assessment. 

It's never too early to prepare for college football season - that's why United Airlines is helping college football fans ease their travel preparations by adding more than [120 new flights to its schedule](https://simpleflying.com/united-airlines-college-football-flights/).

![united airlines price history](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/United_Airlines_history_35e85b3700/United_Airlines_history_35e85b3700.png)

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Daily Brief - The Fed did what?

_Whilst we wait for the Fed’s conference, we want to introduce you to our absolute favourite piece of research in the market. Read more below!_

**TLDR**

According to the Fund Manager Survey by BofA, investors shifted heavily to cash and equity exposure is at historic lows.

This makes equities look more compelling than anytime during 2022. Is this the start of a Q3 rally?

![equity allocation ](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/image_6_588d2f469d/image_6_588d2f469d.png)

**The single best piece of research in the market**

If there’s one piece of research to which investors look forward, it is certainly BofA’s [Fund Manager Survey](https://business.bofa.com/en-us/content/global-research-about.html#:~:text=Global%20Fund%20Manager%20Survey).

Running since the times when Merril Lynch was an independent outfit, the Survey tells us about the average positioning of institutional money across different asset classes.

Honestly, it’s a great piece. If you have a buddy at BofA, ask them to send you the FMS. And even if you don’t, the key highlights go out across many media platforms every month - for example [see here on Bloomberg.com](https://www.bloomberg.com/news/articles/2022-07-19/bofa-survey-shows-full-investor-capitulation-amid-dire-pessimism).

**What is the Fund Manager Survey telling us this month?**

The FMS is telling us investors are bearish. VERY bearish (chart below). And that their allocations to equities are at the historic lows (first chart above).

To complete the triptych, last week we mentioned that [SPX Futures Positioning is at historic lows](https://toggle.ai/analyze/spx/spx.futures_positioning?view=chart).

In short, people are underweight equity. Very underweight..

![where's lehman](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/image_5_868b15f75e/image_5_868b15f75e.png)
 
**So what do I make of this? Earnings might still fall**

Worries about the economy are well warranted. With commentators right and left pointing Powell to Volker’s playbook, the Fed will be thinking seriously about how far to hike.

But stock prices are not determined by fundamentals - rather by the buying and selling of investors who react to fundamentals.

This is why you can have vicious multi-month rallies even during recessions

There comes a moment when those who wanted to sell are done selling. When the only investors left in the markets are buyers, markets go up.

**Conclusion**

Low positioning in equities might underwrite the right conditions for a Q3 rally.

## Idea Spotlight: Exxon Mobile

[Price level indicators for Exxon Mobil dropped](https://toggle.ai/article/6aa39ffc-0d63-11ed-ac26-2a0d42ef0b78) and historically, this led to a median increase in price of 14.26% over the following 3M. TOGGLE analyzed 19 similar occasions in the past to produce the median projection and this insight received 5 out of 8 stars in our quality assessment.

Investors are eyeing Exxon Mobile as the company prepares to announce its Q2 2022 earnings on Friday - [here's what you need to know](https://finance.yahoo.com/news/investors-heavily-search-exxon-mobil-130001155.html). 

![exxon price history ](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Exxon_Mobil_history_5199e33e21/Exxon_Mobil_history_5199e33e21.png)


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Daily Brief - Investors capitulation leading to Q3 rally

**TL;DR**

The two-day Federal Reserve policy meeting kicks off today and concludes on Wednesday with a press conference by Chairman Powell. Rising interest rates have been a big equity driver this year as the Fed tightens policy in the face of rising inflation. No surprise then that the proverbial eyes of the market are focused on the FOMC’s decision this week. Game on.

**What should you expect?**

Fixed income markets have priced in 75 basis points as their central case. The strong inflation print for June led to speculation that the Fed may up the ante again with a 100 bps hike. A spate of weaker data and a recent drop in inflation expectations took some pressure off, and Fed officials speaking publicly seemed to rally around the 75 bps hike ([“It’s still huge”, said one of them](https://www.wsj.com/articles/fedspeak-cheat-sheet-what-fed-officials-said-before-their-july-meeting-11658506645).) This would take the rates to 2.25-2.50% range.

That, by Fed’s own assessment, is a neutral level of rates. Beyond that, policy gets restrictive. How far will they go? 

**What else should we watch for?** 

Press conference on Wednesday will be closely watched for clues. Powell & Co. use this pulpit to conduct “forward guidance.” It’s a way to talk up (or down) interest rates without actually adjusting the policy rate: all they need to do is signal what they EXPECT they’ll be doing at the next meetings and markets will do the work for them. 

This is a clever - and effective - way to fine tune the level of interest rates without actually explicitly committing to that level. In contrast, Fed Funds rate can’t be adjusted up or down each meeting without a loss of credibility (“What are these guys doing??”).

Most likely, Chairman Powell will continue to drive home the message that inflation is unacceptably high and that the central bank is solely focused on getting it under control. Markets have already priced in another 100 bps of tightening in subsequent meetings.

**The Dot Plot**

Now for the famous Dot Plot. The Dot Plot is a chart that records each Fed official’s projection for the central bank’s key short-term interest rate. One dot for each official. 

The expectations represent the official expectation where the Fed Funds rate will be at the end of each calendar year three years into the future. ([For more on this, please read this much more detailed explanation](https://www.bankrate.com/banking/federal-reserve/federal-reserve-dot-plot-explained-how-to-read-interest-rates/).) The Dot Plot is not released at every meeting so it’s closely scrutinized when it does. 

The last one is from June and it tells an interesting story. 

![funds target chart](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Screen_Shot_2022_07_26_at_8_08_55_AM_eb4cc12776/Screen_Shot_2022_07_26_at_8_08_55_AM_eb4cc12776.png)

**Fed cuts coming?**

As of June, the median projection for FOMC members was for the Funds rate at 3.4% by year-end. That’s very close to what the market is currently pricing in. However, for 2023 expectations start to diverge meaningfully.

The median Fed estimate for the end of 2023 was almost 3.8%, another 40 bps of hikes. The market begs to differ. It’s pricing in 70 basis points of rate cuts later in 2023. 

What is the market missing? Or is the Fed’s crystal ball cloudy? The explanation may be more benign. 

Markets are free to price in a scenario where higher rates cause a recession (and therefore required Fed easing). Fed members may not be: explicitly expecting that their policy is likely to push the economy over the edge is unlikely to go over well, inflation or not. 

That doesn’t mean they don’t agree. 

## Idea Spotlight: Tyson Foods

[Equity yield indicators for Tyson Foods rose](https://toggle.ai/article/822cfded-0cb1-11ed-a9af-56d8e7903f19) and historically, this led to a median increase in price of 14.85% over the following 1M. TOGGLE analyzed 7 similar occasions in the past to produce the median projection and this insight received 6 out of 8 stars in our quality assessment.

Yesterday, Tyson Foods, Inc. awarded $1.5 million in grants to [63 non-profit organizations](https://www.tysonfoods.com/news/news-releases/2022/7/tyson-foods-invests-15m-support-hunger-relief-local-communities) to support hunger relief and community assistance programs

![tyson foods price history](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Tyson_Foods_history_fb45e8037a/Tyson_Foods_history_fb45e8037a.png)