Morning market outlook: Rotation bites mega-cap tech as defensives lead

Introduction#

U.S. equities head into Tuesday, February 17, 2026 on the back of a mixed Monday close that masked pronounced cross-currents beneath the surface. According to Monexa AI, the S&P 500 (^SPX) finished at 6,836.17 (+0.05%), the Dow (^DJI) at 49,500.93 (+0.10%), and the Nasdaq Composite (^IXIC) at 22,546.67 (-0.22%). Volatility was not idle: the VIX (^VIX) rose to 21.95 (+3.54%), while small-cap volatility (^RVX) eased to 25.64 (-1.95%). Breadth favored defensives and income: utilities led sector gains, energy and basic materials advanced, while technology underperformed. Against that factor backdrop, overnight narratives centered on tighter AI capital-spending scrutiny, softer European equity futures, lower Treasury yields, and a holiday-thinned Asia session with Lunar New Year closures—threads that collectively point to a cautious tone ahead of the open.

The style tape continues to show rotation. Monexa AI’s newswire flagged value outperforming growth across market caps overnight, and UBS’s global equities team underscored that the “math is getting challenging” for AI developers to translate large capex into profits—an observation that is increasingly relevant for mega-cap platform valuations. Financial Times reporting similarly highlights elevated AI infrastructure outlays and uncertain near-term payback timelines at the hyperscalers, including an outsized 2026 capex plan at Amazon that intensifies the market’s focus on return on investment (FT; FT; FT.

Market Overview#

Yesterday’s Close Recap#

The headline indices barely capture the rotation underway. Defensive sectors were bid while parts of high-beta tech bled. Within technology, mid-cap hardware, software, and networking names rallied, even as the largest platforms slipped. According to Monexa AI’s market data, here is the prior session’s close snapshot:

Sector and single-stock dispersion was the story. Monexa AI’s heatmap flagged robust gains in mid-cap tech—Applied Materials AMAT (+8.08%), Arista Networks ANET (+4.79%), CrowdStrike CRWD (+4.40%), ServiceNow NOW (+3.67%)—alongside weakness in mega-caps like Apple AAPL (-2.27%) and Nvidia NVDA (-2.23%). In financials, Coinbase COIN (+16.46%) and Robinhood HOOD (+6.82%) surged, while Visa V (-3.12%) slumped. Travel and home-related cyclicals were notably bifurcated, with Norwegian Cruise Line NCLH (-7.57%) and homebuilder NVR NVR (-7.34%) sliding, even as Wynn Resorts WYNN (+5.14%) and Airbnb ABNB (+4.65%) rose. Healthcare’s bid was led by Dexcom DXCM (+7.59%), Molina MOH (+6.82%), Vertex VRTX (+5.69%), Moderna MRNA (+5.29%), and UnitedHealth UNH (+3.10%). Utilities rallied broadly, with NRG Energy NRG (+6.52%), Vistra VST (+5.14%), Constellation Energy CEG (+4.46%), and Eversource ES (+4.32%).

Two sentiment tells deserve attention. First, volatility remains elevated relative to recent history: the VIX at 21.95 sits well above its 50-day average of approximately 16.37 (Monexa AI), a marker of lingering macro and positioning uncertainty. Second, the CNN Fear & Greed Index remained in “Fear” territory on Friday, per Monexa AI’s newswire summary of the Benzinga recap, reminding investors that flows are not yet embracing a full risk-on stance.

Overnight Developments#

Overnight, the narrative cohered around risk moderation. Monexa AI’s newswire noted that U.S. tech futures were softer into the holiday-shortened week and that European equity futures were indicating a weaker open, as AI spending anxiety and competition weighed on sentiment. U.S. Treasury yields edged lower as traders looked ahead to delayed data releases in the compressed calendar. Trading in Asia was thinned by Lunar New Year market closures in China, though separate commentary suggested a constructive setup ahead for mainland and Hong Kong equities on trade optimism and policy-easing expectations.

On the policy and regulatory front, India’s IT minister said the government is discussing age-based restrictions with social media platforms, a headline that matters for large platforms like Meta META and Alphabet GOOGL/GOOG. Meanwhile, a high-profile crypto forum at Mar-a-Lago is slated for Wednesday—an event featuring Wall Street and exchange leaders that could refresh digital-asset policy conversations, with sentiment implications for Goldman Sachs GS and Nasdaq NDAQ. In commodities, Monexa AI cited overnight notes that gold and silver prices softened, intraday context that often correlates with small shifts in real yields and the dollar.

The bigger overnight thread is structural: Financial Times reporting underscores that hyperscaler AI capex remains extremely elevated while near-term ROI visibility is cloudy—an imbalance that is compressing multiples for rich, mega-cap growth and channeling flows toward value and defensive sleeves (FT; FT; FT.

Macro Analysis#

Economic Indicators to Watch#

The holiday-shortened week introduces timing noise, with Monexa AI noting “more delayed data” ahead. Absent a major data release this morning, investors will likely anchor on interest-rate expectations via the Treasury curve and volatility signals via the VIX and RVX, especially given Monday’s elevated close in equity volatility. The interplay is straightforward: further slippage in long-end yields could extend the bid in income-oriented sectors like utilities, while upside rate surprises would pressure rate-sensitive equities and could restrain the incipient rally in small caps.

Beyond rates, liquidity preferences bear watching. The ongoing debate around AI capex payback periods implies potential pressure on growth-stock cash flows and discount-rate sensitivity. At the same time, a higher-quality value bid can persist if inflation expectations remain contained and commodity price shocks are absent. With no material U.S. macro print at the open, tape action will likely be driven by sector reallocations, idiosyncratic earnings, and any incremental guidance on capex discipline from large tech.

Global/Geopolitical Factors#

Global headlines carry several investable angles this morning. First, Asia’s partial closure for Lunar New Year constrains immediate read-throughs, but separate notes pointed to constructive sentiment for Chinese and Hong Kong equities on post-holiday reopen, anchored by trade optimism and expectations for further PBOC easing. Second, shipping is quietly in focus again: according to Baltic Exchange data cited by Monexa AI’s newswire, the Baltic Dry Index is more than 60% above its 2023 lows, a datapoint that historically supports dry-bulk carriers and is often interpreted as an early signal of improving goods movement and commodity throughput. Third, regulatory and legal crosscurrents are in view: India’s social-media age-restriction discussion could alter growth trajectories in a crucial market for META and GOOGL, while an Australian federal court fine levied against a local Exxon XOM brand highlights ongoing compliance risk for energy majors even as the sector enjoys free-cash-flow strength.

Sector Analysis#

Sector Performance Table#

According to Monexa AI’s sector performance summary at the prior close, defensives and cyclicals—notably utilities and energy—led, while technology lagged. The table below captures the move by sector:

One caveat on methodology: Monexa AI’s heatmap analytics suggested a strong positive print for real estate yesterday, while the sector-performance compilation shows a -0.41% decline. We are prioritizing the sector-performance table above as the standardized, index-weighted summary of final prints, while treating the heatmap readings as a useful breadth lens that can, at times, diverge due to intraday snapshots, constituent selection, or differing benchmarks.

The composition of sector leadership matters. Utilities’ outperformance was broad, cutting across merchant power, nuclear, and regulated names. That speaks to an income bid and to structural narratives around electricity demand—including the AI data-center buildout—that may lift forward power-price expectations. Energy’s strength was more idiosyncratic across producers and midstream, with integrated majors mixed. Materials were split: gold miners and EV supply-chain names gained as industrial gases and steel slipped. Consumer staples found support in grocers and big-box retailers, but specific beverage exposures sold off. Technology’s decline was a study in dispersion: mid-cap winners versus mega-cap pullbacks, a pattern consistent with investors rotating away from the most crowded AI beneficiaries toward companies with tangible order books and cycle leverage.

Company-Specific Insights#

Earnings and Key Movers#

FirstEnergy FE reports this morning. Analysts expect Q4 2025 EPS of $0.52 (down -22.4% year over year) on revenue of $3.24 billion (+2%), per Monexa AI’s aggregation. The setup reflects the tension in regulated utilities: steady top-line with EPS compression and notable leverage (a 2.15 debt-to-equity ratio) offset by a sectoral bid for yield. With a P/E near 21.85, valuation support hinges on forward rate stability and constructive regulatory outcomes.

Eversource ES is emblematic of yesterday’s utility bid. UBS maintained a Neutral rating but lifted its price target to $80 (from $75) and highlighted strong 2025 earnings power (non-GAAP recurring of $1.77 billion, or $4.76 per share), per Monexa AI. Shares also featured in the heatmap’s leaders, advancing more than +4% in a session dominated by defensives.

CoreWeave CRWV remains headline-sensitive. Multiple law firms announced class actions alleging securities violations linked to disclosures on data-center timing and the failed Core Scientific acquisition. Monexa AI’s coverage cites robust top-line scale-up—Q3 revenue of $1.4 billion (up +134% YoY), backlog of $55.6 billion, and 2.9GW contracted capacity—alongside a $110 million GAAP net loss driven by $311 million in interest expense. Capex of $1.9 billion and deployment delays underscore the core debate: capital intensity and timing risk in the AI infrastructure buildout. Shares have been resilient near $96, but the litigation overhang and capex cadence argue for caution until operational milestones de-risk the narrative.

Toast TOST drew favorable attention. Bernstein upgraded the shares to Outperform with a $39 target, and several institutions reported new or increased positions, per Monexa AI. The company delivered FY25 revenue growth of roughly +24% with a pivot to GAAP profitability and strong free cash flow in recent updates, according to coverage summaries. The risk deck includes potential effects from the proposed Credit Card Competition Act on transaction economics, but the stock’s setup—restaurant tech spend normalizing and software margin scalability—has improved. Watch the follow-through in guidance commentary for proof of durable operating leverage.

Wendy’s WEN remains pressured. Plans to close hundreds of U.S. restaurants against a backdrop of declining domestic sales, plus a recent $7 price target from a major broker flagged by Monexa AI, frame a classic “show me” turnaround. Absent a clear path to stabilizing same-store sales and unit economics, rallies are fades until new data arrives.

DraftKings DKNG saw a target reset to $28 amidst recent volatility (shares near $21.76, off roughly -13.51% per Monexa AI). With a robust seasonal calendar ahead, the bull case leans on product cadence and state launch optionality. But position sizing should respect tape fragility in consumer discretionary and payments-linked cohorts.

Cognex CGNX is a stealth winner at the intersection of automation and quality control. A solid earnings beat—EPS of $0.27 on $252.34 million revenue (+9.9% YoY)—pushed shares to a new 52-week high. Net margin of 11.51% and ROE of 9.02% point to improving efficiency as the factory-automation upcycle finds its footing. This is the kind of mid-cap industrial tech that benefits from real demand and budgeted projects, not just AI halo effects.

Mohawk Industries MHK held a Neutral from UBS with a modest target lift to $140. The housing-exposed complex remains choppy; we note the outsized decline in NVR NVR yesterday as a reminder that rate sensitivity and guidance revisions can drive wide dispersion in home-related equities.

Moderna MRNA retained a Neutral stance from UBS (target nudged to $36). The stock’s recent +5.3% move reflected renewed large-cap biotech interest rather than a clear pipeline catalyst, a reminder that biotech beta can offer portfolio ballast during periods of tech-led churn—but is no substitute for name-specific diligence on trial timelines and regulatory risk.

In communications, Disney DIS advanced roughly +3% amid a broader content and telecom bid, even as Alphabet GOOGL/GOOG and Meta META pulled back. Netflix NFLX, down about -16% over the last 21 trading days per Monexa AI’s digest, still finished slightly higher in the prior session, reflecting tactical dip-buying in premium streaming.

Financials showed their own internal tug-of-war. Coinbase COIN and Robinhood HOOD ripped higher on crypto-beta, while Visa V and peers softened. Wednesday’s Mar-a-Lago “future of finance” forum, featuring Wall Street and Washington voices, could catalyze sentiment around institutional digital-asset rails. For Goldman Sachs GS and Nasdaq NDAQ, policy signaling matters as much as current earnings contribution.

Semis and AI adjacency remain the fulcrum. Despite underperformance in Nvidia NVDA yesterday, the group’s breadth included winners like Applied Materials AMAT. With Nvidia scheduled to report on February 25, options markets will increasingly handicap whether an earnings beat can overcome the market’s ROI skepticism—a dynamic underscored in Financial Times coverage of outsized AI spend and elongated payback periods (FT; FT.

Energy remains both a cash machine and a value story. Exxon XOM headlines in Australia do not alter the core free-cash-flow argument that Monexa AI flagged in sector notes: energy companies are “printing cash” yet still trade at discounted multiples that assume recession-like environments. The question for portfolio construction is duration: if oil and refined-product margins remain constructive, accumulating high-quality energy on weakness continues to screen attractive for dividend and buyback carry.

Shipping quietly reasserted itself. Star Bulk Carriers SBLK and peers stand to benefit from the Baltic Dry Index’s >60% rebound from 2023 lows (Baltic Exchange, per Monexa AI). The theme is cyclical and volatile, but yield dynamics in dry bulk can be compelling when spot rates rise and debt is prudently managed.

Extended Analysis#

The most consequential conversation for today’s open is return on AI investment. Several reputable sources converge on the same point: enormous capital is still flowing into AI infrastructure, but the near-term conversion into profits is uneven and, for some, uncertain. Financial Times reports highlight hyperscaler capex trajectories that remain elevated into 2026, including a striking, AI-centric capex plan at Amazon, while investors and analysts alike question the timeline for monetization across training and inference workloads (FT; FT; FT. UBS’s framing—“the math is getting challenging”—meshes with market behavior: the largest, most richly valued AI proxies are facing multiple compression when evidence of rapid, high-ROIC monetization is thin, even as mid-cap cycle beneficiaries with clearer order visibility rally.

This bifurcation is not a contradiction; it is the market repricing duration and certainty. Companies with tangible, near-term revenue capture—semiconductor equipment makers tied to foundry and packaging expansions, industrial automation providers with backlog visibility, cybersecurity platforms with secular budget priority—are being rewarded. In contrast, platforms whose valuation depends on multi-year, high-confidence AI profit capture are encountering a higher bar. Yesterday’s VIX close at 21.95, well above its 50-day near 16.37, tells you investors are paying for optionality and protection while rotating—not abandoning—risk.

Factor-wise, the style-box update that value outperformed across caps is consistent with the day’s sector tapes: utilities, energy, and materials up; tech down. That does not preordain an extended value regime, but it does argue for balanced, stock-selective positioning. Watch the following signposts to gauge durability: the slope of hyperscaler capex versus cloud revenue growth; reported ROIC/ROE trends for capex-heavy AI builders; electricity-price trajectories as data-center demand ramps; and the relationship between real yields and long-duration growth equity multiples. None of these metrics requires guesswork this morning; they simply require discipline in interpreting reported numbers and management guidance.

One discrepancy worth flagging is in real estate. Monexa AI’s heatmap suggested a strong session across REITs, while the consolidated sector table printed a small decline. This divergence is often a matter of timing, constituent weightings, or sub-industry mix (specialty towers versus office versus industrial). For near-term positioning, investors should differentiate REITs with inflation-linked leases and secular demand (e.g., industrial/logistics, data-center adjacency) from office-heavy portfolios more tethered to financing costs and occupancy risk.

Finally, the shipping and logistics angle deserves more mindshare than it receives. A >60% rebound in the Baltic Dry Index from 2023 lows (Baltic Exchange, via Monexa AI) is not a leading indicator for every asset class, but it is a clean read-through on trade throughput and commodity movement. Combine that with nascent strength in freight brokers and LTL operators—C.H. Robinson CHRW (+4.91%), Expeditors EXPD (+4.23%), Old Dominion ODFL (+4.15%)—and you have a tangible, cyclic counterweight to the AI narrative dominating the airwaves.

Conclusion#

Morning Recap and Outlook#

Heading into the bell, the tape is calibrated for another day of rotation rather than wholesale risk-taking. Yesterday’s close featured a modest S&P gain, a slightly firmer Dow, and a weaker Nasdaq; the VIX sits elevated; and defensives (utilities, staples) plus selective cyclicals (energy, some materials) continue to attract flows. Technology remains a tale of two markets: mid-cap beneficiaries of tangible demand up; mega-cap platforms susceptible to AI ROI scrutiny down. According to Monexa AI, Treasury yields eased overnight while European futures leaned softer and Asia was holiday-thinned—none of which upends the domestic rotation story.

The near-term catalysts are straightforward. FirstEnergy FE this morning will help test whether the utilities bid is strictly rate-driven or can broaden on fundamentals. Nvidia NVDA on February 25 looms as the next major sentiment checkpoint for AI-exposed equities: in this environment, an earnings “beat” is necessary but may not be sufficient if guidance does not address the market’s payback timetable concerns. The Mar-a-Lago crypto forum on Wednesday could sway digital-asset sentiment around financial rails, with spillovers into COIN, HOOD, GS, and NDAQ. Regulatory headlines out of India on social media age restrictions could influence growth assumptions for META and GOOGL in a critical market.

For positioning into the open, lean on what the tape is rewarding. Within technology, emphasize companies with order-book visibility and clear monetization frictions resolved—semicap, select cybersecurity, and workflow platforms with pricing power—while trimming exposure to the most extended, multiple-sensitive mega-caps until the AI ROI discussion matures. In defensives, utilities and quality staples continue to provide ballast; in cyclicals, energy’s free-cash-flow and capital-return profile remains underappreciated relative to recessionary multiples. Keep size disciplined: elevated volatility argues for risk budgets calibrated to drawdowns rather than to headline enthusiasm.

Key Takeaways#

The path of least resistance before the bell is more rotation. According to Monexa AI, the prior session’s close saw utilities at the top of the leaderboard (+3.55%), with energy and materials following, while technology slipped (-0.69%). The VIX at 21.95 remains above its 50-day average, consistent with a preference for income, quality, and tangible cash flows over aspirational growth. Overnight news was directionally cautious—lower Treasury yields, weaker European equity indications, and Lunar New Year-thinned Asian sessions—while Financial Times reporting reiterated the core fundamental issue of our time: AI’s capital intensity versus its near-term profit conversion. Until that gap narrows in reported numbers and guidance, expect dispersion and stay selective.