News and analysis

Small caps actually benefited the most from the Federal Reserve’s (Fed) Chair Jerome Powell verbal signals last Friday. Newswires all cheered with one voice echoing his “time has come” voice for the monetary policy to be adjusted, as well as financial Chef cook’s “the direction of travel is clear” complement, even though the main dish has been sauced with “depending on incoming data, the evolving outlook and the balance of risks” remarks concerning the point of timing and pace. Everybody feels these cooling condiments as just empty courtesies to avoid saying “yes, we will do it” loudly up front.

“We don't seek or welcome further labor market cooling,” Powell noted to smooth potential negative effects from the spicy 818,000 downward revision in US annual jobs statistics, the largest update since 2009. All in all, the broad Wall Street’s S&P 500 barometer failed to reset its all-time highs so far. Some leading megacaps like Microsoft or NVidia also stepped back from direct attempts of jumping above their historical peaks, which we do not consider as a bad luck. Background demand on bellwethers is so strong and stable, especially following the tech retracement in early August, that it’s now O.K. to see it is not influenced much with interest rate matters. This is just one more proof that the investing crowd loves AI-related stocks not only for the pure fact some people may have access to cheaper excessive money.

Fed Chair speech could not change much in the script for market leaders. Besides, megacaps quotes are high enough already in terms of the ever-lasting uptrend, while cash in both Dollars and Euros is still burning everybody’s hands. What happens when people are looking for alternatives, and the monetary climate hints to become one or two degrees more comfortable for businesses soon? The plan of making rates lower may cure smaller companies’ struggling against heightened costs in supply chains and cost-conscious customers.

With the U.S. central bankers seemingly ready to start cutting interest rates, iShares Russell 2000 ETF (IWM), being an indicator of broader hopes of skipping recession, climbed from nearly $215 to above $221 on the agenda, which added as much as 2.8% to its more than 2% gains on expectations one week before to contribute to the small caps index’ 10% recovery from its local lows of August. The pace of its current move is looking so good. Purchasing the deeper slice of Wall Street companies, in the form of the Russell 2000 index or its 10-times-cheaper and more affordable ETF shares, now is a smarter option compared to more bets on rising the S&P500 above 5,800. An extra step up in the S&P 500 may give another 5% or 7%, but the next stage of rising in the Russell 2000 may give 15% or even more, when targeting at potential updates in all-time highs between 250 and 260 points, in terms of the IWM tool.

Coin 98 (CNE) is experiencing a 3.0% decline, bringing its price down to $0.1335 on Monday. The drop was even more significant earlier in the day when prices reached $0.1301. This pullback could be viewed as a moderate correction following CNE's 7.2% surge last Friday, which was driven by a broader rally in the cryptocurrency market.

The recent rally was spurred by Federal Reserve Chair Jerome Powell's announcement at the Jackson Hole symposium, where he signaled the beginning of an interest rate cut cycle. This dovish monetary policy is particularly important for the crypto market, as lower interest rates typically encourage higher-risk investments. Investors are currently pausing to assess the changing market conditions. Once the market digests these developments, CNE prices could resume their upward trajectory, potentially reaching $0.1500.

Ripple (XRP) is experiencing a notable rise of 5.2% this week, reaching $0.6000, which is twice the gain of the broader market. In comparison, Bitcoin (BTC) has seen a 2.6% increase, bringing its price to $61,000. This positive movement in altcoin prices follows a significant legal development on August 7, when Judge Analisa Torres ruled that Ripple must pay a $125 million fine, a much smaller penalty than what the U.S. Securities and Exchange Commission (SEC) had originally demanded.

In addition to the reduced fine, the judge also prohibited Ripple from selling XRP to institutional investors, marking an intermediate victory for the company. The SEC has 60 days, until October 7, to file an appeal. If the SEC does not file an appeal, Ripple’s victory could become final. Until then, XRP prices are expected to consolidate within an ascending triangle pattern, which often signals the potential for further upside movement.

The first time when I brought my humble attention to Target stock was my birthday party. My brother-in-law presented a T-shirt with a painting of a white bear and a star in the sky above the beast, accompanied by a “Golden State California” pride slogan. It still serves me to symbolize a cheap style of sweet home comfort, but also perfect resilience to all kinds of winds, for more than 18 months. When asked where he got this piece of simple beauty, he said his sister just sent a package with “made in USA” gifts, and this particular thing was purchased for $19.99 in some store named Target.

I was curious enough to google and tried to find out what this Target is. Various sources described it as probably the second largest chain of stores in the middle between the consumer discretionary and the discount segment of North American retailers. As an investor, I became immediately intrigued by a self-imposed investigation why Target stock was not a part of my portfolio to join successful Walmart and Lowe’s or a problematic but recovering Macy’s, and I quickly found a solid reason with its clearly troubled price dynamics. It happened so that Target was so shining investment to gain as much as possible in the corona time. However, in 2022 and 2023, it has been “weighted, measured and found wanting”, if you know what I mean.

The overvalued stock ultimately dropped from above $250 to nearly $100, and it was abandoned there for many months, as Target’s profit margin was squeezed between Scylla of elevated supply chain expenses and Charybdis of cost-conscious consumers. Thus, I almost abandoned any plans of investing some of my free cash into Target, but now it looks like an advantageous time to revisit the idea.

Target stock is soaring now. Supported by strong Q2 results, it spiked from nearly $145 to $167.20 at a short-lived intraday peak on August 21. The price retraced to a little more adequate range between $157 and $160, and so it can be called attractive, as it is less than 10% higher on solid fundamentals, also offering a nearly 10% discount against its newly minted, and hopefully temporary peaks.

Financial performance of Target did not decline in July, with both June and July were stronger than May, based on promotional activities and strategic planning, its CEOs commented after the chain announced quarterly earnings per share of $2.57 on sales of $25.45 bln vs $2.19 on $25.2 bln in consensus bets of Wall Street analysts, after $2.03 on $24.5 bln in Q1 and $1.8 of EPS on $24.8 in the same season of 2023, with comparable sales rising by 2% YoY.

And, what is more important, I am not alone in my current investment desires. UBS adjusted its outlook on Target by raising its price target to $200 from the previous $185 and keeping a Buy rating on the stock, citing “a surge in customer traffic, robust gross margin improvements, and an uptick in other income, attributed partly to a double-digit increase in advertising revenue”. Meanwhile, the Bank of America raised its price target to $195, which belongs to almost the same technical area. Target’s estimated EPS for the fiscal year of 2025 has been shifted from $9.45 to $9.70. A rather pessimistic RBC Capital also increased its price target for Target from $174 to $177, with an Outperform rating and potential revenue growth of 0.4% and 1.5% for fiscal years 2024 and 2025, respectively. Wells Fargo revised its target to $180 from $160, which is not so bad as well. Evercore ISI raised its target for Target to $160 only, reflecting a global slowdown in the e-commerce sector, but saying that Target's EPS may approach $9.50 in 2024 and $10.50 in 2025.