Today, the market is reacting to Target's (TGT -1.68%) fourth-quarter earnings announcement. Surprisingly, the stock has risen 3.5% in early trading. It's surprising because sales, gross margin, and earnings per share all fell for the quarter, and not by insignificant amounts. Now take a look at the long view and you can see why the stock is rising.

Since Target announced its data breach over the holidays, the stock has fallen 8%, even with today's rebound. Investors are finally seeing inside the belly of the beast and they've discovered that it's not as bad as they thought -- but it's still bad. What little gems have the market heading back to Target instead of running down the road screaming?

Insurance does what insurance does
One of the biggest mitigations in Target's report was the revelation that of the $61 million hit that the company took from the data breach, $44 million was covered by insurance. That payment will leave just $17 million in expenses for Target to cover.

While insurance helped with the initial impact, the longer-term still looks like a mountain to be climbed. Target's customers have been scared off the brand a bit, and comparable store sales dropped 2.5% over the quarter. Because the fourth quarter carries such a huge weight in the world of retail, annual comparable sales also fell. 

Target fights for sales
Target has said a number of times now that everything was looking good for comparable sales right up until they let people know that 110 million or so customers had information stolen from the company's point-of-sales machines. That made people a little wary about shopping at Target, and pushed sales down from the end of December on.

It's not yet clear where those shoppers are going, though. Wal-Mart (WMT 0.27%) also had a drop in U.S. comparable sales over its fourth quarter. Besides Walmart and Target, consumers are pretty limited in the options they have for all-around shopping. There are a few potential cases that are accounting for that sales drop. Costco and Amazon may be stepping in to fill the void, but both require that customers overcome a barrier to shop: Costco requires membership, and Amazon requires waiting for shipping.

It could also be that consumers are branching out after the Target breach. Maybe Wal-Mart and Target are being overlooked as customers shop in multiple locations in an attempt to keep their data out of the hands of the biggest companies and thus the biggest targets for hacking.

Finally, and I think most likely, perhaps we're just not spending as much right now. The end of 2013 was the end of a year full of weak income growth, confusion in politics, and Americans pulling back on "frivolous" purchases in favor of things like home repair. Target and Wal-Mart are on the losing end of that equation, with Target taking an extra beating from all its bad press. Target has a chance to turn that around in 2014, but it's going to depend in part on how Americans feel about their lot in life, not just on how well Target can protect them.