What Happened?
Shares of general merchandise retailer Target (NYSE: TGT) jumped 3.3% in the afternoon session after President Trump reversed course on a military escalation against Iran that wiped $1.2 trillion from the market earlier in the day.
The session opened under heavy pressure after Trump posted on Truth Social that the U.S. would attack Iran "VERY HARD TONIGHT" and threatened to seize the country's oil assets. Then, around midday, he posted again cancelling the planned strikes. His statement said discussions had been brought to "the highest level of Iranian leadership" and that final points of a peace deal had been "approved by all parties involved," citing thirteen countries including the U.S., Israel, Saudi Arabia, UAE, and Qatar. A signing date would be "announced shortly."
The market moved the moment the post landed. The S&P 500 jumped 1.4%, the Dow surged, and the Nasdaq gained 1.8%. Oil fell more than 3%. The 10-year Treasury yield eased from 4.55% to 4.47%. The read-through is simple: lower oil means lower inflation means less pressure on the Fed to hike. Iran's disruption of the Strait of Hormuz was the single largest driver of the 4.2% annual inflation print reported earlier in the week as energy alone accounted for more than 60% of May's monthly CPI increase. A ceasefire that reopens the Strait unwinds that pressure immediately, potentially taking the December rate hike that markets were fully pricing in off the table.
The shares were trading at $132.69, up 3.7% from the previous close.
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What Is The Market Telling Us
Target’s shares are not very volatile and have only had 4 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 10 months ago when the stock dropped 7.6% on the news that the company reported mixed second quarter earnings. Traffic to its stores fell and gross margin slightly missed.
Also, a new CEO was announced. On the other hand, revenue beat slightly, and full-year guidance was maintained. Overall, we think this was a mixed quarter. Investors were likely hoping for more, or were likely disappointed in the CEO announcement.
Target is up 32% since the beginning of the year, and at $132.69 per share, it has set a new 52-week high. Despite the year-to-date gain, investors who bought $1,000 worth of Target’s shares 5 years ago would now be looking at only $569.46.
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