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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)!

Recently the index dipped towards negative territory save reverting to the mean in the post-Fed selloff. Currently the indicator sits close to 0. 

![tli simple sep 23 2022](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/aggregate_toggle_signals_spx_6_7_8_stars_simple_12_8db69c3cc2/aggregate_toggle_signals_spx_6_7_8_stars_simple_12_8db69c3cc2.png)

To learn more about the indicator and its track record, [watch our Guide to TLI video here](https://youtu.be/b7OOhfbuLbQ) and [read it here](https://toggle.ai/investing).

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

![tli accuracy sep 23 2022](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/aggregate_toggle_signals_spx_6_7_8_stars_16_3947cb84e9/aggregate_toggle_signals_spx_6_7_8_stars_16_3947cb84e9.png)

**The Range Leading Indicator**

The range leading indicator made a move upward but then the Fed drawdown stopped in its track to overbought territory.

![rli sep 23 2022](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/image_57_fd7052b3e4/image_57_fd7052b3e4.png)

**General Interest - Patagonia’s owner gives it all away 💾**
_Every week we endeavour to bring you one high quality article post of general interest_

Talk about the Giving Pledge. The owner of Patagonia took it to the extreme and gave away the whole estate.

Dividends will amount to about $100 per year, to be devolved to climate causes. 

![patagonia ceo ](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/image_56_a760f6274b/image_56_a760f6274b.png)

Read more [here](https://www.bbc.com/news/business-62906853).


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Friday Edition! (Sep 23 2022)

**TLDR**

With 10y reaching 4%, the post-Fed market could see bond prices stabilize.

![us sov 10y](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/image_54_f47fd404b1/image_54_f47fd404b1.png)

**“Buy the rumor, sell the news” applies to the Fed as well**

The market moved well ahead of the Fed to price the risk of more hiking in the upcoming months - especially after the publication of August’s CPI.

It might well be that a stabilization of markets follows the Fed’s announcement as most of the impact is already priced in.

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

_The Good: PMIs and positive Citi Economic Surprises!_

PMIs came out strong at the start of the month, and Citi Economic Surprises turned positive this month. Recession appears averted for the time being. In fact, look at the [blip in SPX Forward EPS](https://toggle.ai/analyze/spx/spx.ibes_eps_forward_12m.ds_ibes?view=chart).

_The Bad: expensive valuations_

SPX P/E remains stubbornly above 16x and most importantly we really don’t like that Equity Risk Premium at the 10y lows of 2.5%

_Upcoming: PMIs next month…and Putin_

With FOMC out of the way, we’re looking to growth gauges at the start of October. Also, we’re keeping an eye on the sabre rattling from Russia.

![checklist 092222](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/image_55_6f6170c773/image_55_6f6170c773.png)

**In conclusion?**

In conclusion, it’s possible that equities and bonds both stops dropping after the Fed. But watch out for Putin throwing tantrums. 

## Idea Spotlight: Interactive Brokers

[Analyst revision indicators for Charles Schwab are coming down](https://toggle.ai/article/e624f708-3a46-11ed-b534-9233e81ace4d) and historically this led to a median increase in Interactive Brokers price of 33.28% over the following 6M. TOGGLE analyzed 6 similar occasions in the past to produce the median projection and this insight received 5 out of 8 stars in our quality assessment. 

[Are you an Interactive Brokers user](https://toggle.ai/ibkr)? Current users can get their monthly trading commissions refunded* and new users can get discounted trades too!

![ibkr price history ](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Interactive_Brokers_history_1_6b37443b51/Interactive_Brokers_history_1_6b37443b51.png)

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Daily Brief - Markets to stabilize post-Fed

**TLDR**

The 2y-10y Treasury Curve has inverted reaching negative 0.5%. Historically the curve never remains inverted for too long, and in the reversion to mean Value Equities and Treasuries tend to do well. Experienced traders should consider a curve steepener.

![buy treasuries ](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/image_53_04c6036dfb/image_53_04c6036dfb.png)

**How to invest in Q4?**

- _Fade the tops_. Markets are capped on the upside by a lot of issues, like uncertain growth, aggressive Fed policy and expensive valuations. Anything that looks like 17-18x forward P/E should be shunned. You can [check the PE of SPX here](https://toggle.ai/analyze/spx/spx.pe_ibes_forward_12m?view=chart).
- _Buy Value and Carry_. As many of our hedge fund friends told us, “with QE out of the way the markets are finally working again”. What they mean is that Value is working again, and to a similar extent so is Carry (remember that equity dividends are an inflation hedge as well)
- _If you want to buy a dip, check bonds first_. If you feel like buying dips, check Treasuries first to see if the bond market has stabilized. If rates stop rising / bonds stop falling then equity dips will become attractive.
- _Get ready to buy 10y+ Treasuries_. We are likely going to see an excess of policy zeal from the Fed. The 2s10s Curve has already inverted, which means the market expects the Fed is overdoing it. We are likely getting close to a peak in long-rates.
- _Sit on cash_. The inflationary headlines are making us all fidget to search for returns. Keep in mind that it pays off to stay in cash to buy when the market has fallen already.
- _Try a curve trade_. This is for expert skiers only. See the section at the bottom on a primer about curve steepeners..

**In conclusion?**

In conclusion we’re in a range-bound market driven by value. It is possible to make money in the next 12 months, but it will require a clear bent to value and the ability to sit in cash until the right moment.

**A primer on the Curve Steepener: an elegant trade to protect against a recession**

_What follows is a complex trade that you should not attempt if you do not have a good grasp of fixed income investing._

When the curve inverts you can trade it in expectation its net yield will rise - which historically happens once the Fed “overdoes it” and we go into a recession. 

To explain how this works, let’s first explain what “the curve” really is.

The curve is the spread in yield between the 2y and 10y Treasury. Using 2s and 10s is a common but arbitrary convention, and investors often look at other pairs of maturities like 2s5s or 10s30s. 

Investors trade the curve in expectations it _steepens or flattens_ - i.e. that the net yield goes up or down respectively. 

To create a curve trade, investors account for the fact that the price of longer-maturity bonds moves more than that of short bonds for the same move in yield.

This is called “duration” and we won’t explain it now because if you don’t know what duration is you should NOT try a curve trade.

To structure a curve steepener you buy the 2s and sell the 10s. At today’s rates you would buy approx. $4.5 of 2y bonds for each $1 of 10y bonds you short. 

We won’t bore you with the arithmetics but - currently - the net carry of a stepener is positive if implemented via futures. 

Which means you can have a nice curve steepener in your pockets for the next 12 months with a) a fantastic inverted entry point and b) net positive carry. Basically you sit and wait to see if the recession comes or the curve naturally steepens. And you make money while you’re at it.

Curve trades are fun! 

_If you want to learn more, we suggest you read the riveting bestseller “[The Handbook of Fixed Income Securities](https://www.amazon.com/Handbook-Fixed-Income-Securities-Ninth/dp/1260473899)”, known colloquially as the Fabozzi._

## Idea Spotlight: Chevron

[Equity yield indicators for CVX:NYSE reached a recent high](https://toggle.ai/article/0b94852a-397a-11ed-ab25-9233e81ace4d) and historically, this led to a median increase in price of 9.36% over the following 1M. 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.

Chevron is starting to talk to retail investors in a brand new way - hosting its [first digital Q&A tomorrow](https://www.cnbc.com/2022/09/15/chevron-is-starting-to-talk-to-retail-investors-in-a-brand-new-way.html).

![chevron price history ](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Chevron_history_1_37dfb21e12/Chevron_history_1_37dfb21e12.png)




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Daily Brief - What to expect in Q4

**TL;DR**

It was August 26, and Chairman Powell was about to take the single biggest stage he has every year: the annual gathering at Jackson Hole. His message left no doubt. The Central Bank has become a single mandate institution. Bringing down inflation back to its 2% target is now all that matters. After a disappointingly slow peak in the CPI, all eyes are on the Fed meeting this Wednesday. What does that mean for the markets?

This time, fixed income markets got the message. 2-year Treasury yields are now at their highest level since the Global Financial crisis. It was not always so. 

After another 75 bps  increase in July, Mr. Powell vaguely hinted at the Fed eventually moderating rate rises. Investors were elated and markets staged a rally that usually marks the end of a hiking cycle. It was not to be, and the Jackson Hole speech set the record straight. The S&P 500 has slid nearly 7% since then, and the 2-year Treasury yield has hit its highest level since 2007.

![2y treasury](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Screen_Shot_2022_09_20_at_8_25_58_AM_64f7c14416/Screen_Shot_2022_09_20_at_8_25_58_AM_64f7c14416.png)

The Fed’s determination to bring inflation down - at whatever the cost - has hardened since. The officials are anxious not to let an inflationary mindset take root. That is why they are in a hurry to see the economy cool. Already, wage growth is racing ahead: wages for private-sector workers rose 5.7% for the 12 months through June.

The longer inflation is high, the greater the risk “that the public will start to just naturally incorporate higher inflation into its economic decision-making. And our job is to make sure that doesn’t happen” Powell said in a follow-up speech on September 8.

The Fed seems to be borrowing heavily from the 1980s’ playbook by the legendary chairman Paul Volcker, credited with breaking the inflationary cycle of the 1970s. “Vacillation and procrastination, out of fears of recession or otherwise, would run grave risks,” Volcker told lawmakers in early 1980.

There is another reason to frontload the hikes. Public and market tolerance for tighter monetary policy is far higher with the unemployment rate below 4%, a historic low. When it eventually rises above 5%, the Fed will face more pressure to take into account the tradeoffs between employment and inflation. 

The natural lag between the monetary policy and its subsequent impact on the economy gives them some breathing room - and a brief window to hike aggressively.

## Idea Spotlight: Ferrari 

[Volatility indicators for RACE:NYSE dropped to 30.58](https://toggle.ai/article/f6b861c3-38b3-11ed-a34a-9233e81ace4d) and historically, this led to a median increase in price of 10.61% over the following 3M. TOGGLE analyzed 12 similar occasions in the past to produce the median projection and this insight received 7 out of 8 stars in our quality assessment.

Ferrari investors couldn’t have been surprised by news the Italian luxury supercar maker [finally unveiled its long-awaited first SUV](https://www.forbes.com/sites/neilwinton/2022/09/15/ferrari-shares-advance-after-first-suv-unveiled-as-investors-relish-profit-possibilities/?sh=4be1620a67d0) but the shares nevertheless notched a solid gain after sliding recently.

![ferrari price history ](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Ferrari_history_7fe450ef4d/Ferrari_history_7fe450ef4d.png)

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Daily Brief - No soft landing for the economy

**TL;DR**

A recent [Barron’s article](https://www.barrons.com/articles/why-is-the-stock-market-down-it-knows-the-worst-is-yet-to-come-51663376619?mod=hp_LEAD_2&utm_campaign=april7&utm_medium=email&utm_source=db) quoted a fascinating statistic for numbers nerds like ourselves. Tuesday’s stock bloodbath in the aftermath of the CPI report showed a record number of selling flows. In fact, fewer than 1% of the stocks in the S&P 500 finished higher. According to the article, this has happened only 28 other times since 1940. The index gained an average of 15.6% over the following 12 months, and was higher 79% of the time. 

So, what’s next?

This might be a good moment to review our bear market checklist again for a sanity check on how close we might be to the major bottom in stocks.  

**The bear market checklist**
To be clear, the aim of the checklist is primarily to instill the discipline and patience for that perfect pitch. It’s by no means an exhaustive list of helpful indicators in determining a market low. A bear market could easily bottom with only 3-4 “checks'' on this list.

1. **Duration: No check**.
When we last checked this list a couple of months ago, we were only about two thirds through the historically typical 10-12 month duration. While still no check, at just over 9 months the bear market is now very close to its historical duration.   
2. **Peak to trough correction: No check**.
We are very close but not quite at the 36% drop often seen during bear markets - S&P 500 clocked in at around 23% at the very low, short of the mark at the lows. A retest and a possible extension of the drop thus remains quite likely.
3. **Retest: No check**. 
The bounce started from a new low and hasn’t retested it yet. However, we are getting tantalizingly close to the lows of June.
![spy ](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Screen_Shot_2022_09_19_at_8_16_41_AM_095993b868/Screen_Shot_2022_09_19_at_8_16_41_AM_095993b868.png)
4. **Divergence with new stock lows: No check**
This indicator was improving but suffered substantial setbacks in recent weeks.
![barchart](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Screen_Shot_2022_09_19_at_8_16_52_AM_c528706a2a/Screen_Shot_2022_09_19_at_8_16_52_AM_c528706a2a.png)
_Source: BarChart_
5. **90% upside day: No check**. 
Market is currently in a downturn so this can only be checked once we turn up again. 
6. **TLI turning positive: No check**.
The aggregation across all TOGGLE insights has been remarkably spot on during the bear market and - even correctly highlighting the relatively short lived rally - currently remains in the neutral territory. 

On balance, the evidence suggests we have not yet bottomed. At the very least, a re-test of June lows may be in the cards and potentially extending the drop beyond. 

## Idea Spotlight: Disney 

[Valuations indicators for DIS:NYSE reached a recent low](https://toggle.ai/article/01eee3f5-37de-11ed-8ac2-fefb9a26ea2d) and historically, this led to a median increase in price of 16.11% over the following 6M. TOGGLE analyzed 4 similar occasions in the past to produce the median projection and this insight received 5 out of 8 stars in our quality assessment.

CEO Bob Chapek's Disney: [Streaming exclusives, no politics, sitting tight on ESPN...](https://finance.yahoo.com/news/bob-chapeks-disney-streaming-vision-122232430.html)

![disney price history ](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Disney_history_bfc0865b24/Disney_history_bfc0865b24.png)


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Daily Brief - The bear market checklist

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

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

After a sharp peak in positive territory, the TLI is currently swinging towards negative space - albeit the sharp market gyrations of the last few days will likely have an impact on the trend of the indicator going forward.

![tli simple sep 16 2022](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/aggregate_toggle_signals_spx_6_7_8_stars_simple_10_736cdaa83d/aggregate_toggle_signals_spx_6_7_8_stars_simple_10_736cdaa83d.png)

To learn more about the indicator and its track record, [watch our Guide to TLI video here](https://youtu.be/b7OOhfbuLbQ) and [read it here](https://toggle.ai/investing).

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

![tli accuracy sep 16 2022](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/aggregate_toggle_signals_spx_6_7_8_stars_14_fbd3d86e0a/aggregate_toggle_signals_spx_6_7_8_stars_14_fbd3d86e0a.png)

**The Range Leading Indicator**

As introduced last week, our new range indicator helps us gauge when a security will revert inside of a trend.

The indicator snapped back above -0.75, pointing to bottom-forming price action.

![tli 091622](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/spx_ohlc_indicator_2_7f051b3edf/spx_ohlc_indicator_2_7f051b3edf.png)

**General Interest - Floppy Disk Gold 💾**
_Every week we endeavour to bring you one high quality article post of general interest_

During the last 10 years, the QE-fuelled bull market has lifted up the price of stocks, bonds and … any form of collectible really - just look at the price of premium watches.

An unexpected member of this group of “QE assets” is floppy disks. 

![floppy disk](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/image_52_031eded8a2/image_52_031eded8a2.png)

“In the last ten years they’ve gone from ten cents to one dollar apiece” says the owner of floppydisks.com - who made a veritable business of providing floppy disks to a large number of institutions who still use them.

These old data storage devices had already achieved immortality through their depiction as the universal “Save” icon 💾.

But it appears that they also earned another lease of active life, as a number of institutions still need them - from government branches to airlines.

Read more [here](https://eyeondesign.aiga.org/we-spoke-with-the-last-person-standing-in-the-floppy-disk-business/).


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Friday Edition! (Sep 16 2022) 

**TLDR**

A drop in inflation is long overdue, if one judges by the trend in growth of the last year. This will stabilize market prices and provide support for a rally.

![effects of changes in growth ](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/image_50_a409ce329a/image_50_a409ce329a.png)

**Inflation to 0%?**

We often discussed the chart above, based on a Fed model for connecting growth one year with inflation next year.

The model has suggested CPI was due for a meaningful drop in 2022. As we all know, that prediction proved incorrect. In part, that is certainly to blame on the first- and second-order impacts of the invasion of Ukraine.

But the underlying message remains: if one was to use growth as the only gauge for inflation, we should be seeing a drop in prices, not a rally.

And this can eventually happen, leading to a more benign monetary policy and relief in equity markets.

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

_The Good: upward PMIs and positive Citi Economic Surprises!_

PMIs came out strong at the start of the month, and Citi Economic Surprises turned positive this month. Recession appears averted for the time being.

_The Bad: expensive valuations_

SPX P/E remains stubbornly above 16x and most importantly we really don’t like that Equity Risk Premium at the 10y lows of 2.5%

_Upcoming: FOMC on Sep 21st_

FOMC will meet on Sep 21st, and will likely deliver a 75bp hike. We will see the devil in the detail about the nuances of policy action.

![checklist 091522](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/image_51_eaaa039b5b/image_51_eaaa039b5b.png)

**In conclusion?**

As demonstrated by price action last Tuesday, we are in range-bound markets. When markets rally, a bad CPI print can nudge them to a 4% intraday mini-crash.

So buy the dips, fade the tops, and expect volatility on days with big policy & economic announcements.

## Idea Spotlight: McDonalds

[Volatility indicators for MCD:NYSE reached a recent low](https://toggle.ai/article/f68e6de4-34c0-11ed-8922-fa822ce49c54) and historically this led to a median increase in price of 4.42% over the following 3M. TOGGLE analyzed 9 similar occasions in the past to produce the median projection and this insight received 6 out of 8 stars in our quality assessment. 

CEO Chris Kempczinski said the burger giant is grappling with violent crime, homelessness and drug overdoses in its Chicago restaurants, and called on city and business leaders to [find ways to address the problem](https://www.wsj.com/articles/mcdonalds-ceo-raises-crime-concerns-for-business-in-chicago-11663195918)

![mcdonalds price history](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Mc_Donald_s_history_119fb661fb/Mc_Donald_s_history_119fb661fb.png)


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Daily Brief - The Big Market Checklist

**TLDR**

Yesterday the market panicked after CPI rose 0.1% instead of falling 0.1%. 

Investors’ reaction shows how the Fed remains pivotal for markets in 2022 and beyond. And this pessimism has practical implications, as asset managers are heavily underweight equities.  As growth improves and inflation falls, this can lead to sharp rebounds in equities. Only the Fed can spoil the party.

![global growth pessimism](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/image_49_6a9f8f0d10/image_49_6a9f8f0d10.png)

**Why are investors underweight equities?**

Investors hold grim views on the economy - as grim in fact as 2008, judging by BofA’s Fund Manager Survey. 

Their gloom was driven primarily by the bearish performance of all major asset classes in H1’2022 - including fixed income, usually a safe haven in economic hard times.

**Why do I care?**

The allocation of long-only “slow money” can be very important for the future direction of markets.

Asset allocators manage 100x more money than hedge funds and short-term traders, and their positioning can drive markets for quarters when it reaches extremes. 

Currently investors are underweight equities in aggregate. And as growth rebounds and inflation cools off, the chances of a snap back in equities are considerable, like we’ve seen in the last few days.

**‘Ware of the Fed**

The Fed remains a key issue for market participants to ponder. With increasingly hawkish saber-rattling across all major central banks, policy makers might drive the economy into the ground in an excess of zeal.

**In conclusion?**

At the cost of sounding like a broken record: evidence is mounting that Q4 markets will remain range bound.

If you are value- or yield-seeking, buying the dips can provide good entry points. And if you trade actively, it might make sense to fade the peaks.

## Idea Spotlight: PayPal

[Valuations indicators for PYPL:NASD reached a recent low](https://toggle.ai/article/032b61c4-3339-11ed-bc20-fa822ce49c54) and historically, this led to a median increase in price of 16.79% over the following 3M. TOGGLE analyzed 6 similar occasions in the past to produce the median projection and this insight received 5 out of 8 stars in our quality assessment.

Synchrony Financial CFO said the store-card company would be a “natural partner” for PayPal Holdings Inc. as the payments giant looks to [offload $6.2 billion in loan receivables](https://finance.yahoo.com/news/synchrony-natural-partner-paypal-loan-170612382.html).

![paypal price history ](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Paypal_history_2_c29f24f4b6/Paypal_history_2_c29f24f4b6.png)

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Daily Brief - Investors VERY underweight after CPI apocalypse

**TL;DR**

It’s been an absolute rout in the US Treasury market in August. 10-year yields are marching back towards the highs in June (when, coincidentally, equities bottomed along with Treasuries …) However, the yield curve has remained stubbornly inverted as the front end yields moved even higher. What does that mean?

![graph](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Screen_Shot_2022_09_13_at_8_28_20_AM_9cefcb1807/Screen_Shot_2022_09_13_at_8_28_20_AM_9cefcb1807.png)
 
**One-handed economist**

“All my economists say, ‘on the one hand...on the other” fumed the American president Harry Truman. “Give me a one-handed economist.” Unlike the dismal science, yield curve is seen as a much more objective - and, importantly, accurate - predictor of business cycles. 

Generally, a yield curve inversion has been followed by a recession within 12 months: five out of the past six, by one count. Look at the chart below: every meaningful curve inversion is followed by the ominous shaded area highlighting a US recession. 

![10y treasury graph](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Screen_Shot_2022_09_13_at_8_28_33_AM_dce8fbfee7/Screen_Shot_2022_09_13_at_8_28_33_AM_dce8fbfee7.png)

Although its recession prediction is far from perfect, it has been better than most economists. And recently, it inverted right before two of the biggest global calamities: the Global Financial Crisis in 2008 and the COVID pandemic in 2020.  

**What does it actually mean?**

The underlying assumption for the yield curve's ability to predict recessions is that the two ends of the curve are set separately: the Fed sets short-term rates with its fed-funds target while yields of lengthier maturities are set by the market expectations. 

The inverted curve reflects market conviction that, to tame inflation, the Fed will ultimately have to tighten financial conditions further and push the economy into a recession. 

**And how about equities?**

Curve inversion is not (in itself) a sell signal for equities. However, it does usually signal outperformance of higher quality assets. Global stocks have typically gained about 8% in the 12 months following the last four inversions of the US 2s10s curve, according to Morgan Stanley research. 

For example, US Utilities and Healthcare outperformed the S&P 500 by 6-8%, signs of late-cycle defensiveness working. Finally, late-cycle periods can be good for commodities, especially oil, as has been the case here (albeit for geopolitical reasons).

The most obvious economic repercussion for US stocks will come through an earnings slowdown. As noted in yesterday’s Daily Brief, however, it’s only when such declines turn extreme that stocks begin to pay attention.

## Idea Spotlight: Tesla

[Analyst expectation indicators for TSLA:NASD are low](https://toggle.ai/article/915fe2fb-3338-11ed-bc15-fa822ce49c54) and historically, this led to a median increase in price of 21.34% over the following 3M. TOGGLE analyzed 5 similar occasions in the past to produce the median projection and this insight received 6 out of 8 stars in our quality assessment.

Tesla executive Martin Viecha spoke at the invite-only Goldman Sachs tech conference on Monday - [he laid out the company's next 5 years](https://www.businessinsider.com/tesla-next-5-year-plan-trends-cheaper-ev-robotaxi-service-2022-9). 

![tesla price history ](https://storage.googleapis.com/toggle-webcm-prod/https://storage.googleapis.com/toggle-webcm-prod/Tesla_history_2_6d89aa2e53/Tesla_history_2_6d89aa2e53.png)

