The Daily Dose: What Does it All Mean?

 | Dec 20, 2013 | 11:30 AM EST
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Stocks ripped on Wednesday and dipped on Thursday. On Wednesday life was wonderful: Dow 30,000 was in sight. But on Thursday the world was uncertain amid economic data that didn't fit too well with the Fed's rosier assessment of the economy.

Confused? I sure am, and people send me payments electronically to plot carefully their investment attack plan. Here are a few broad stroke thoughts into the weekend periodical reads:

  1. All November domestic data should technically represent bottoms, with December being the handoff to accelerated growth rates in sets of numbers. If the acceleration is not spotted -- for instance it was absent in the Philly Fed -- then the market may begin to be concerned if the taper will bring with it unfortunate financial outcomes.
  2. In the woods of the dying taper, stocks should be reacting more to macro data and company-specific performance. So start getting out of your head there is some sort of backstop to a $0.02 earnings miss.
  3. The Fed is fueling a 2014 stock correction in two manners. First, companies are putting more money into the hands of investors via dividend increases. And they will buy more stock at valuations that are stretched because no new homework has been done. Complacency will have set in! Once those dividend increases become smaller in 2014, and they will, lookout. Second, companies are removing their stock from the public markets via their supersized new share repurchase programs. That increases demand at inflated valuations and that behavior fuels the balloon.

The Bottom Line on Why Target Data Breach is Mildly Disturbing

I was not particularly fond of how the Target (TGT) data breach was handled by the company or fellow analysts. It was not given the proper focus in that: (1) you should expect more breaches in 2014 given the influx of data these companies are collecting and trying to use to their advantage; and (2) Target is no longer Target, it has shown for over a year now that it has growing fundamental cracks.

Bigger Picture on Target

I just chatted with Target two weeks ago for clients. The main thing I took away was that they seem to have all these things going on from online to Canada to a new ship-from-store program, all hitting at once. But, the stores are lacking on inventory, there is yet another issue with online in the data breach and they are re-trenching on CityTarget. 

If you do get the earnings warning I think will come in February. The discussion could begin on a change at the top before that -- if it's an activist Target (again). My firm's rating remains a sell on the stock. Note the stock has badly underperformed the S&P Retail Index in 2013, as well as another stock we have at a sell rating -- Wal-Mart (WMT).

Data Breach Specific

Target's new apps and redesigned site, and its 5% reward program, are really sucking in the traffic and transactions both for new and previous customers. The rising amount of data they are sitting on is pretty enormous. Considering the breach, by extension it would be huge issue that make take a little while to pinpoint. While this search for the truth is happening, the issue damages the trust Target had gained in mobile (new Cartwheel app function has received a very strong, positive response, in excess of 2 million users). It also calls into question how sales trend in January will be once this news spreads all over the place (if Lululemon outrage was intense, a data breach for an equally-trusted brand in social media will be big, if not bigger).

Your eyes should be on the company's Facebook page to gauge outrage and to feel if the degree of impact to sales will be material. It's not exact science, but it's a helpful trick I will be employing going forward.

Oh, and please check your banking statements!

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