Market Review: February 14, 2022

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Closing Recap

Monday, February 14, 2022





DJ Industrials




S&P 500








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Equity Market Recap

·     Another volatile day on Wall Street as stocks dropped late afternoon on geopolitical concerns after several news reports indicated Russia has moved some long-range artillery and rocket launchers into firing position, threatening Ukraine, according to a U.S. official, CBS news reported midday. Some Russian units have left their assembly areas and are beginning to move into "attack positions," according to the official. CNBC noted U.S. pulling remaining embassy staff out of Kyiv, moving them to western Ukraine, as Ukrainian president Zelenskyy says in an address that Wednesday "will be the day of the attack." However, Bloomberg reported shortly after that Ukrainian leader Volodymyr Zelensky spooked markets with what appeared to be a sarcastic comment about the rest of the world predicting a date for a Russian attack, which he said should be a day of unity instead (stocks rebounded off lows after). Markets were very volatile trying to make heads or tails of the very odd commentary and reporting by several news outlets. Still, the headlines spooked markets that were holding good gains prior in the tech heavy Nasdaq, while the S&P was little changed most of the morning as weakness in defensive sectors, energy and financials offset strength in technology and consumer discretionary. Oil prices spiked to fresh 7-year highs on the uncertainty, gold prices jumped to 3-month highs and treasury yields slipped off earlier highs as investors flocked to defensive assets on the macro headlines. With all eyes on Russia/Ukraine overnight, investors also get another look at inflation with the January producer price index (PPI) tomorrow morning and FOMC minutes from December meeting on Wednesday, as well as another busy round of earnings this week.

·     Stock & Sector movers: vaccine space pressured as PFE BNTX sink sharply after Friday’s news that the FDA postponed its meeting for children under 5yo, MRNA NVAX roll, JNJ slides as well; energy names APA MRO OXY FANG, potash names CF MOS among the S&P’s worst decliners as they reverse some of their recent gains; busy day for M&A news: COLL surges after acquiring BDSI for $5.60/shr in cash (>50% premium), CNR spikes to 3.5-year highs after receiving a proposal from a PE firm for all shares not currently owned at $24.65/shr (~33% premium), LMT AJRD slide after Lockheed officially abandons the proposed merger, SPLK soars after the WSJ reported CSCO proposed a takeout offer for more than $20B; in earnings, WEBR plummets to record lows on its weak sales report and THS jumps on guidance ahead of estimates.



·     Oil prices spiked above $95 per barrel for the first time since 2014, as WTI crude gains $2.36, or 2.53% to settle at $95.46 per barrel and Brent crude jumped $2.04 or 2.16% to $96.48 per barrel as markets position that a Russian attack on Ukraine will happen. Today U.S. officials said the US embassy in Ukraine’s capital of Kyiv was to close and relocated hundreds of miles west near the Polish border. They added that as part of the move the State Department ordered computers and other equipment at the embassy to be destroyed. Oil eased earlier to lows of $92.09.

·     Gold prices rose $27.30 or 1.5% to settle at $1,869.40 an ounce (up 10 of the last 11 sessions), trading at 3-month highs in a flight to safety amid rising concerns around the Russia-Ukraine conflict. Gold was not deterred by a spike in the dollar or a surge in rates, or concern ahead of tomorrow’s PPI January inflation report and minutes from the U.S. FOMC January monetary policy meeting later this week.


Currencies & Treasuries

·     Treasury yields were back on the rise after Fed president Bullard reiterated his cautious comments about inflation again, as the 10-yr yield rises over 7bps to 2.022%, while 2-yr up almost 10 bps to 1.615% (spread flattens to about 40 bps – flattest since July 2020 and 20bps flatter from end of January). Treasury yields dipped briefly on Friday (as much as 12 bps) as the White House warned a Russian assault on Ukraine could begin at any time, sending investors scurrying for bonds and other safe assets. But inflation concerns superseded today, as yields regained strength ahead of a busy week of Fed speakers. A late day roll in stocks on renewed concerns of imminent Russia conflict with Ukraine, pushed bonds higher and yields lower.

·     The U.S. dollar index (DXY) moved back to two-week highs, with the euro dipping back below the 1.13 level, with the buck/yields rising on rising interest rate concerns after St. Louis Fed Reserve president James Bullard reiterated calls for a faster pace of rate hikes. He said that four strong inflation reports in a row warranted action. Rate hike expectations have risen for the March meeting to possibly 50 bps, though some Fed members have downplayed that notion in recent days. Meanwhile, investors also watching the developments in Ukraine with Russia. The yen strengthened against the dollar.






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10-Year Note





Sector News Breakdown


·     Retailers; WEBR shares tumble after posting a top line miss (Revs $283.1M vs. est. $310.78M) as gross margins missed, and EBITDA guidance was taken down citing cost inflation and supply chain headwinds and sees FY22 net sales growth to be 6%-8% above FY21-year-end; Cowen issues earnings preview TGT vs. WMT Preview saying they are more cautious on EPS risk at TGT as lower tgt to $265 from $300 & WMT (tgt to $165 from $175) given lack of upside to 4Q and 2022 guidance which may be in-line at best; inventory fears ease slightly after a demonstration in Windsor, Ontario was finally cleared by police Sunday after blocking one of North America’s busiest cross-border trade channels for more than five days

·     Auto sector; TSLA sold 59,845 China-made vehicles in January, the China Passenger Car Association (CPCA) said on Monday after selling 70,847 China-made vehicles in December; Chinese EV makers NIO delivered 9,652 cars in January, increasing by 33.6% year on year, and XPEV delivered 12,922 vehicles – CPCA said passenger car sales in January in China totaled 2.11 million, down 4.5% from a year earlier; GT was upgraded to Overweight from Neutral at JP Morgan after the firm reported solidly better 4Q21 results Friday but at the same time pointed to a softer than expected 2022 outlook, citing inflation, sending the shares -27.4% lower; IAA downgraded to Neutral from Buy at Guggenheim following recent weaker than expected 4Q

·     Consumer Staples; TSN downgraded to Equal-weight at Barclay’s saying while reported strong results last week, they see limited upside potential at current levels; THS Q4 EPS was in-line on slightly better sales of $1.17B, but down -1% y/y while guiding FY22 Rev growth to 11% v est. ~4% which brings EBITDA midpoint above street estimates; APRN signed an agreement for an additional $5.0m private placement investment by RJB Partners LLC, an affiliate of Joseph N. Sanberg; CMG, CVGW shares active after reports the U.S. has temporarily suspended Mexican avocado imports after an American official received a threatening phone call

·     Restaurants; SHAK was added to the Wedbush Best Ideas List as believe current expectations do not bake in a post-Omicron recovery resembling pre-Omicron Q4’s trendline; the WSJ reported that DASH will raise its fees on MCD restaurants that are slow to prepare orders in an effort by the delivery company to improve efficiency and cut losses – but lowered the base commission rate that McDonald’s will pay on orders from nonsubscribers to 11.6% and the fee on orders from DashPass subscribers will be 14.1% (down from 15.5% prior)

·     Casinos, Gaming, Lodging & Leisure sector; online gambling stocks in focus following the Super Bowl weekend, while Barron’s comments on the sector saying BALY, CZR might be a buy in the online gaming sector saying the growth opportunity could be huge – Six stocks to bet on the online gambling boom (BALY, BYD, CZR, DKNG, Flutter, and PENN)



·     Energy stock movers; UAE energy minister Suhail al-Mazrouei said today that oil prices are being driven higher by geopolitical tensions, adding that he didn’t believe Russia would invade Ukraine. Oil eased on Monday, after earlier hitting its highest in more than seven years, as Ukraine hinted at possible concessions to Russia that could alleviate tensions between the two countries that Western governments say are on the brink of war. BE outperforms in energy, up 5.8% after Bofa upgraded to Buy earlier saying a solid near-term performance raises his confidence in the company’s update multi-year outlook; overall energy stocks plunged despite a late day surge in oil prices on Russia/Ukraine macro concerns



·     Bank movers; sector with early weakness as investors remain focused on inflation and Fed interest rate hikes. Financials have surged over the last 2-weeks on rising rate hike expectations but taking a breather the last few days on profit taking; in research, Jefferies upgraded shares of regional banks CMA and ZION to Buys (and up tgts), while downgraded JPM and USB; CHW said Jan. Total client assets $7.80t, +15% y/y and core net new assets brought to company by new and existing clients totaled $33.6 bln for January

·     Insurance; MET is exploring the divestment of its U.S. variable annuity book as it seeks to free up resources to invest in higher-growth parts of its business, Reuters reported this weekend; in research, ALL was upgraded to Buy from Neutral at UBS as believe that underlying margin improvement beginning in 2H22 will drive upward EPS estimate revisions and multiple expansion, while downgrade PGR to Neutral from Buy as believe it is generally ahead of the industry in taking corrective rate filing action and should be able to see margin expansion ahead of peers , but believe that this is already largely reflected in current valuation

·     Consumer Finance; DFS upgraded to Buy from Hold at Deutsche Bank and up tgt to $145 from $140 saying upside catalysts include stronger economic conditions (jobs) stronger-than-expected loan/ deposit, while downside risks are Increased macro/consumer health concerns, worsening credit trends, and adverse reg. policy changes/scrutiny



·     Biotech & Pharma movers; BHVN and PFE announce positive topline results of pivotal trial of Rimegepant for the acute treatment of migraine in China and South Korea; COVID vaccine makers among worst performers with PFE, MRNA, NVAX tumbling – recall late last week FDA postpones panel on PFE preschooler covid shots; BDSI to be acquired by COLL for $5.60 per share in cash in deal valued around $600M; AXLA announces FDA fast track designation for axa1125 in Nash; PRQR downgraded at Citigroup and tgts slashed by analysts after no benefit observed for sepofarsen in the pivotal Illuminate trial last week sent shares plunging

·     Healthcare Services; OSCR upgraded to Neutral from Sell at Goldman Sachs as membership growth and capital raise put OSCR in better position; need visibility on profit ramp, PT $9.00. GIR sees the risk/reward as more balanced at current levels


Industrials & Materials

·     Aerospace & Defense; LMT announced it has terminated its agreement to acquire AJRD the decision to terminate the agreement follows the U.S. FTC’s lawsuit filed late last month seeking a preliminary injunction to block the acquisition; TGI was upgraded from Hold to Buy at Jefferies and raise tgt to $26 from $20 w/ visibility to positive FCF following the last divestiture this month and saying revenues, profit, FCF are all set to inflect; BA said is not concerned about a potential disruption to Russian titanium supplies because of tensions over Ukraine, but is keeping a close watch on other industry supply chain pinch point; EADSY was upbeat on freighter sales, while plays down supply chain fears

·     Industrial & Machinery; MMM said it is well positioned for long-term sustainable growth and value creation- announces 2022 guidance: total sales growth of 1%-4%, organic sales growth of 2%-5%, eps of $10.15-$10.65, robust cash flow- highlights growth opportunities; AAN tgt to $24 from $28, RCII tgt to $58 from $70 and lower ests in rental sector at Bank America to reflect our view that retail spending broadly slowed through 4Q and 1Q-to-date; CNR surges after saying it received a non-binding proposal from its largest shareholder, Clayton, Dubilier & Rice LLC, to acquire the rest of the company for $24.65 a share in cash.


Technology, Media & Telecom

·     Semiconductors; MU upgraded to Outperform from Neutral with $120 tgt at Wedbush noting that the assumptions for NAND pricing used have become conservative, given the recent disruptions at Western Digital’s plants in Japan; TXN was downgraded from Outperform to Market Perform at Raymond James citing rising capital intensity late in the cycle, with new spending details that they and the market weren’t expecting ($3.5 billion in CAPEX for 2022); AMD closed on its $50B acquisition of XLNX today; NVDA in focus with earnings later this week (February 16th after the close)

·     Software movers; CSCO recently made a takeover offer worth more than $20B for SPLK according to reports late Friday by the WSJ, but the companies aren’t currently in active talks, and it isn’t clear whether other potential suitors are circling Splunk; in the video game sector (ATVI, EA, TTWO), NPD Group reported that videogame sales fell y/y in January for a third straight month, as overall sales dipped narrowly, down 2% from January 2021 to $4.684B, led lower by videogame content sales that fell 4% to $4.109B. Accessory sales fell 15%, to $185 million, and hardware sales from Sony and Microsoft rose 22% to $390 million; SE falls after the Indian gov’t bans 54 Chinese apps that pose threat to the country, including popular Chinese apps like TikTok, WeChat, UC Browser and more to safeguard the interests of crores of Indian mobile users


Market commentary provided by Hammerstone Markets, Inc, a firm separate from and not affiliated with Regal Securities. Regal Securities has not participated in the creation of the content, and does not explicitly or implicitly endorse the content.

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