AAP Morning Comments: Markets, Ukraine War, Economy, Apple, Deere

In the coming week, we not only shut the book on March but also the first quarter of 2022, and so far all four major stock market indexes indicate equities are having a tougher time compared to 2020 and 2021. This morning U.S. futures point to a positive open that is being influenced by the next round of peace talks between Russia and Ukraine, as well as the latest retreat in oil prices following word of the fresh Covid lockdown in China.

Ahead of peace talks slated to begin tomorrow in Turkey, Ukrainian President Volodymyr Zelenskyy is insisting on the territorial integrity of his country after earlier suggesting he was ready for a compromise. Previous reports indicate Ukraine would discuss adopting a neutral status as part of a peace deal with Russia but such a pact would have to be guaranteed by third parties and put to a referendum. While we can understand how this latest round of "hopium" will influence equities in the very near-term, we have to remember the devil is in the details and if peace talk falter it would mean the duration of the war, sanctions, and other implications would continue.

As we approach the March quarter earnings season, investors will soon have a much better sense as to the financial impact on earnings expectations for the first half of 2022. We expect to hear much about price increases being employed to counter rising input costs, but that will only serve to raise concerns further over consumer spending power. Over the coming days, we'll look for clues from the handful of companies who report their latest quarterly results this week. With the week bringing the start of March facing economic data, including several takes on March manufacturing and job creation, the picture for the global economy's rate of growth during the first quarter of 2022 should solidify considerably.

In terms of the AAP portfolio, we will continue to round out existing position exposure as it makes sense while we continue to examine fresh ones as well. Our goal remains to position the portfolio to capitalize on opportunities for the coming 12-18 months. With that in mind, we recently added ChargePoint (CHPT) to the portfolio and this morning it announced a strategic partnership with autonomous logistics company Gatik to build out an electric ecosystem for autonomous vehicles across North America. While that will likely take time to bear fruit given the time to both build out said ecosystem, but also eventual adoption of autonomous vehicles, it matches the multi-year time horizon we have for CHPT shares. We expect other longer-term announcements to be had even as ChargePoint shares nearer term wins like the one with Volkswagen (VLKAF) we discussed in Friday's Roundup.

Apple Speculation

Shares of Apple (AAPL) are trading off this morning on reports the company is cutting production levels for the recently announced 5G iPhone SE. The initial report from Nikkie Asia purports Apple is cutting 20% from its iPhone SE output for the next quarter, which equates to lower production levels of roughly 2-3 million units. Let's remember there is some component overlap, including Apple's A15 chip and what we could be seeing is Apple managing its product mix so as to maximize not only consumer demand but also its revenue. We say this following comments last week that Apple is seeing "stellar" demand for iPhone 13, including the higher priced Pro and Pro Max models.

We are seeing this bit of Apple speculation run through the ecosystem of known suppliers, weighing on shares of Qualcomm (QCOM) , Cirrus Logic (CRUS) , and our own Skyworks (SWKS) . We've seen similar speculation in the past, and it has tended to equate to not only noise but also an opportunity for longer-term focused investors. Last week we mentioned we were eyeing the forming base in SWKS shares as an opportunity to round out our position size in the RF chip company, and that remains our current thinking.

Deere Shares Catch an Upgrade

This morning our shares of Deere & Co. (DE) caught a somewhat expected upgrade by JPMorgan to Neutral from Underweight and a new $440 price target. While we hesitate to point the finger, we have to question what took so long for that revision to come about given the sharp increase in not only ag commodity prices but rising expectations for farmer income this year. While arguably late to the party, the removal of the bear on DE shares equates to acknowledging the positive factors that drive our thesis as well as our $450 target. And with the continued strength in ag commodities and the increase in farmer income expectations, we're reviewing upside to our current price target. We would caution members, however, that odds are our Two rating will stand unless we see upside to more than $500.

Action Alerts PLUS is Long CHPT, AAPL, SWKS, DE.