⚠️ Don't panic just yet

You're too optimistic, says BoA | Target clocks in |

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Hi Reader, here's what you need to know for March 3rd in 3:08 minutes.

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Today's big stories

  1. Bank of America thinks investor optimism has risen to problematic levels
  2. You don’t need to panic about last week’s stock market selloff, but there is a point where things could go downhill fast – Read Now
  3. Target reported better-than-expected earnings, but the retailer isn’t making any predictions about how 2021 will unfold

Think Positive(ish)

Think Positive(ish)

What’s Going On Here?

Looks like investors’ self-help kick in lockdown has got a little out of hand: Bank of America (BoA) is seeing signs that investor optimism has risen to a level that’s signaled trouble for stocks in the past.

What Does This Mean?

BoA is in the habit of tracking how much investment banks are advising their clients to dedicate to stocks as a percentage of their overall portfolios. And the current average of 59% is dangerously close to the 60% level at which BoA thinks it’s time to sell up. Stock market returns have, after all, historically come in below average the year after investors crossed this threshold. In fact, the last time this “contrarian indicator” flashed a warning sign in June 2007, global stocks went on to drop 13% over the next twelve months…(tweet this)

Why Should I Care?

Zooming out: China isn’t a financial island. 
BoA's in good company: China’s worried investors are getting ahead of themselves too. The country’s financial regulator said on Tuesday that it reckons US and European stock markets are way too high considering the challenges their respective economies are facing. And when those bubbles pop, it won’t just cause havoc for them: Chinese markets – which are now more closely linked to foreign markets than in previous downturns – could take a beating too.

The bigger picture: Your positivity might be rewarded.
All this optimism isn’t totally misplaced, mind you: global economic growth is expected to rebound this year, and central banks and governments will probably keep pumping activity-boosting cash into their economies to the benefit of company earnings. So for all this talk of bubbles, there could still be gains to be had if you’re willing to scale back on more expensive and at-risk stocks, like tech. Goldman Sachs, for one, recommends looking at economically sensitive cyclicals and cheap-looking “value” stocks instead…

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2. Analyst Take

Don’t Be Freaked Out By Last Week’s Stock Market Selloff

What’s Going On Here?

Long-term US government bonds have their worst start to a year since 2009, with 10-year yields shooting up from 1% to 1.5% last month.

That sparked concerns among investors, and convinced them to ditch some of their stocks in a hurry.

And look, it’s true that once yields hit a certain point, it’s all downhill for the stock market.

But we haven’t actually hit that point just yet. In this case, bond yields simply rose too far, too fast.

In fact, this environment could prove really quite productive for stocks fitting into a select few industries and investment styles.

So that’s today’s Insight: why you don’t need to panic about rising yields just yet – and when you should.

Read or listen to the Insight here

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Clerk Hard, Play Hard

Clerk Hard, Play Hard

What’s Going On Here?

Target reported better-than-expected quarterly earnings on Tuesday, but the retailer’s can-do attitude might only go so far in 2021.

What Does This Mean?

Target’s had two factors working in its favor over the last year: it’s been allowed to keep its shops open during the pandemic, and it’s offered an all-important one-stop shopping experience. Even so, the retailer’s outdone itself: it grew its sales last year by more than it did in the previous eleven years combined.

But investors were more interested in an answer to the ever-present million-dollar question: how will this year pan out? After all, it’s still not clear if big-box retailers like Target will be able to hold onto their gains when rival stores reopen and consumers go back to spending their cash elsewhere. And as one of the industry bellwethers, Target was supposed to have an answer for investors – but it opted to keep quiet instead.

Why Should I Care?

For markets: Target’s ill-gotten gains might not hang around forever.
One reason Target grew so quickly last year was because it poached market share from rivals that did have to shut up shop. All in all, the company reckons it gained about $9 billion in sales at the expense of its competitors. Still, investors seem to think Kohl’s and Macy’s will snatch some of those gains straight back: the department stores’ shares have been outperforming Target’s ever since news of the vaccines dropped last year.

The bigger picture: Zoom’s not over till the last person logs off.
Zoom is more hopeful that new habits are here to stay: the video-conferencing app posted better-than-expected results and better-than-expected projected sales for this year late on Monday. And since the number of big-spending customers – those more likely to stick around when everyone else has called time on Zoom happy hours – jumped by more than 150% last quarter compared to the year before, it’s no wonder the company’s feeling so confident.

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💬 Quote of the day

“I have found adventure in flying, in world travel, in business, and even close at hand. Adventure is a state of mind – and spirit.”

– Jacqueline Cochran (an American pilot and business executive)
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📚 What we're reading

  • Bill Gates vs. Greta Thunberg (The Irish Times)
  • How to escape this boring time and space (Vice)
  • We’re finally cloning endangered species (NBC)
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