TOP STORY
😰 Markets Have Worst Week Since April As Fears Rise of a Prolonged US-Iran Conflict

😰 The numbers are in, and unsurprisingly, the Iran-US war was not good for the stock market. As discussed last week, the biggest threat from the war was the closure of the ‘Strait of Hormuz’, a waterway vital for the world’s total oil trade.

🚢 According to reports, a handful of drone strikes came off near the strait, and that was enough for insurers and shippers to deem it unusable, leading to over 20% of global oil supply effectively trapped.

🛢️ As a result, Brent Crude (the global oil benchmark) surged over 28% to $92 per barrel, with Qatar’s energy minister saying prices could reach $150 per barrel in the coming weeks if oil tankers are unable to pass through the Strait, and that “this could bring down the economies of the world.”

🧘‍♂️ Trump Tries to Calm Nerves

🛡️ In response to the Strait chaos, Trump vowed to provide all vessels with $20B in government-backed “political risk insurance” and even brought up the idea of escorting oil tankers in the Strait by the U.S. Navy to “ensure the free flow of energy to the world.”

🩸 But that unfortunately wasn’t enough to save us from a very rough week, with all the major indexes falling, in the worst week since last April (when ‘Liberation Day’ tariffs shook the markets). Across the indexes:

• The S&P fell -2.02%

• The Nasdaq-100 fell -1.27%

• The TSX fell -3.66%

⭐️ “Not As Bad As It Might Have Been”

Despite the big drop, according to many analysts, the week ‘wasn't as bad as it might have been,’ with many investors still buying the dip in hopes that the conflict would end quickly:

🤞 This hope was especially strong at the start of the week, with the market opening relatively flat on Monday and even climbing on Wednesday. But as the conflict waged on, stocks fell hard Thursday and Friday, with JPMorgan saying:

😬 While Trump has suggested the war could end in a matter of weeks, fears of a prolonged conflict spiked on Friday when Trump said he would only accept "unconditional surrender" from Iran to end the war.

🏆 Energy & Defence Stocks Rise With Palantir Soaring 15%

Despite the rough week overall, there were some sectors and stocks which benefit from the war:

• 🛢️ Energy stocks and ETFs like the BMO Equal Weight Oil and Gas Index ETF ($ZEO) (which tracks the largest Oil & Gas companies in the world) jumped 1.7% over the week and now up 19% year-to-date.

• 🛡️ Defence stocks and ETFs like the Global X Defense Tech ETF ($SHLD) were also unsurprising winners, with SHLD jumping 3.2% over the week and now up 16.3% year-to-date

⭐️ One of the biggest winners was Palantir ($PLTR), which soared 15% (its best week since last August), a welcome boost for investors after the over 33% decline over the past 2 months.

⏰ The war is especially good timing for Palantir, as many feared the government’s blacklisting of Anthropic (which Palantir partners with to power its AI tools) would hurt the company, but it seems investors largely brushed that off this week.

🤔 What’s Next?

👀 Ok, so does this mean you should sell all your stocks and ETFs and pile into defense and energy? Well no…

🔍 The reality is, if you’re a long-term investor, you should get used to headlines shaking up markets, and the best way you can keep calm during times like these is to zoom out (see chart below).

🟢 While the market swings up and down, over the past 82 years, every 10-year period in the markets has delivered positive returns (also, 93% of 5-year periods and 88% of 3-year periods). This means while it’s difficult to know what will happen next week or next year, if you have a diversified portfolio, you can rest easy knowing time is your ally.

⁉️ In the near term, the big question that will sway the markets is ‘how long will the conflict last’. If the conflict drags on, oil prices will stay high, hurting the economy and the stock market. If it wraps up soon, we'll likely see the quick recovery that dip buyers are hoping for.

🛍️ Outside of defense and energy, two other stocks saw strong gains this week that flew completely under the radar amid the war: Costco & Target, which soared 3% and 9% this week after earnings.

🕵️‍♂️ So let’s take a look at what’s going on with 2 of Blossom’s favourite retail/grocery stocks, and what they mean for the economy at large. But first, a word from our sponsor this week RBC Direct Investing!

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EARNINGS RECAP
🛍️ Costco and Target Soar After Earnings

✨ With the markets deep in the red this week, let’s lighten the mood with 2 stocks that crushed it this week after earnings: Costco ($COST) and Target ($TGT).

First Costco, which beat both Revenue and Earnings estimates. By the numbers:

• ✅ Revenue hit $69.60 billion vs. $69.06 billion expected, up 9% year-over-year

• ✅ Earnings per share hit $4.58 vs $4.54 expected, up 7% year-over-year

🚀 An E-Commerce Growth Pathway

🛒 A core part of Costco’s growth story is e-commerce. As we saw with Walmart ($WMT) recently, digital sales have been the highest-growing segment for traditional retail businesses. And Costco isn’t any different.

📈 This quarter, Costco’s digital sales grew by 23%, over double the company’s overall sales growth of 9%. As CFO Gary Millerchip put it:

🗺️ This roadmap includes third-party delivery partnerships (like with Instacart ($CART), expanding same-day pickup services, and growing its app ecosystem.

💡 The idea is that with Costco’s already-loyal membership base, it can layer a high-growth digital channel on top of its traditional warehouse business.

🔄 In other words, with every digital investment, the membership becomes more valuable, which drives renewals, which funds more investment into the digital business.

💰 And more spending means a higher membership renewal rate (where the lion’s share of Costco’s profit is made from), a rate that already sits at 89.8%.

📊 Analyst Reactions

👍 Analysts remain optimistic on Costco, with all the major analysts maintaining buy ratings, but expectations are enormous for the company given its sky-high valuation.

Right now Costco sits at a 50x Price to Earnings Ratio, which is higher than even Nvidia’s and nearly double the S&P 500 average. This is probably one of the main reasons the stock only jumped a little bit on such great numbers:

🤖 Target Soars 8% Despite Revenue Drop Amid ‘AI-Powered Turnaround Plan’

🎯 Target on the other hand, which has crashed over 60% since all-time-highs in 2021 as higher-income shoppers switch to stores like Walmart and Costco to save money, saw a surprising 8% jump this week despite declining revenue. By the numbers:

• ❌ Revenue was $30.45 billion vs. $30.48 billion expected, down 2% year-over-year

• ✅ Earnings per share was $2.44 vs $2.16 expected, up 1% year-over-year

👎 This was Target’s 13th quarter of weak sales as Walmart and Costco steal its market share, and looking at the valuations of the 3 companies, it shows.

🪦 Compared to Costco’s PE ratio of over 50x, and Walmarts of ~45x, Target is sitting at only 15x, as many investors see it as a dying stock.

🔄 A Hopeful Turnaround

📈 So why the stock jump? Well, on Feb 1, Target installed a new CEO and leadership team, and has been making massive investments into the business.

🏠 According to the new CEO, Target had lost its place in the market and turned into an “everything store.” Now, the company is set to win back its core customer (busy families) and improve its offerings by focusing on areas such as home, beauty, and women’s style.

🏗️ The company plans to invest $1 billion in 2026 to update its stores, hire and train more employees, and, most importantly, invest big in AI. Target was an early mover in applying machine learning to its business, but with the rise of generative AI, its competitors have caught up. Target’s new CEO sees AI investments as the way to reclaim it’s spot as one of the leaders of retail.

🤩 And in the earnings call this week, Target’s new CEO says this work is already paying off, with an acceleration in February sales, and sales growth expected for every quarter of 2026. Some of the ways Target plans to leverage AI to accelerate the business include:

• 🤖 Predicting trends faster: Target built an internal AI system called “Trend Brain” that analyzes social media and visual data to spot fashion trends earlier, allowing designers to launch new collections in weeks instead of months.

• 🧑‍💼 AI tools for store employees: Workers are using AI-enabled handheld scanners that help prioritize restocking, store displays, and operational tasks, freeing employees to focus more on customer service.

• 🛒 AI-powered shopping experiences: The company is experimenting with chatbots and conversational commerce tools that allow shoppers to search and buy multiple items directly through AI interfaces.

✅ Ultimately, Target’s turnaround thesis is simple: get back to what made the brand work in the first place, affordable style for busy families, while using cutting-edge tech to run the business more efficiently behind the scenes.

💸 And from a valuation standpoint, expectations are already extremely low. As mentioned above, while Costco and Walmart trade at roughly 45–50x earnings, Target sits closer to 15x. That means even modest improvements in sales or margins could lead to meaningful upside in the stock (which helps explain the stock jump this week).

📈 With expectations this low, it also creates an opportunity for investors willing to bet that the new leadership team can successfully execute the turnaround.

🤔 What This Means for the Economy Overall

📊 Taken together, earnings from Costco, Walmart, and Target paint an interesting picture of the US consumer right now: spending is still strong, but shoppers are becoming far more value-conscious.

✨ Retailers that emphasize low prices and essentials, like Costco and Walmart, continue to outperform.

💳 On the flip side, retailers positioned slightly higher on the price spectrum, like Target, have struggled more as consumers cut back on discretionary purchases and look for deals.

🔄 Whether Target can turn that around remains to be seen…

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FROM THE BLOSSOM COMMUNITY
⭐️ Top Discussions of the Week

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