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3 Things to Watch in the Stock Market This Week

Investors saw several large market swings for a second straight week last week. The general trend remained negative, though, as both the the Dow Jones Industrial Average (DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC) shed more than 1 percentage point. The decline left both indexes higher by over 10% so far in 2016, but they're down from the all-time highs reached in late July.

Several highly anticipated earnings reports will be announced over the next few trading days, including from retail giants Home Depot (NYSE: HD), TJX Companies (NYSE: TJX), and Foot Locker (NYSE: FL). Below, we'll take a look at the key trends that might send these stocks moving this week.

Image source: Getty Images.

Home Depot's growth pace

Home Depot announced surprisingly weak sales growth in each of the last two fiscal quarters, but management hasn't wavered from its bullish outlook for 2019. The slowdowns were related to temporary weather challenges, they said in May as they affirmed revenue targets.

On Tuesday, investors will find out whether CEO Craig Menear and his team have been too optimistic in calling for a rebound when wet weather finally passed in the late spring. The best indicator to watch will be comparable-store sales, which fell to 2.5% last quarter but need to average over 5% for the rest of the year to stay on track with management's predictions. Rival Lowe's (NYSE: LOW) will announce its results on the following day, too, and that report will show whether its modest market-share gains against the industry leader continued into the fiscal second quarter.

TJX Companies' holiday forecast

Investors are eager to hear from TJX Companies on Tuesday, since the off-price retailer's report will answer some key questions they have about its short-term outlook. Sales gains were generally strong to start the year, but weak results in the Canada market raised questions about its ability to keep expanding at the robust pace shareholders saw in 2018.

Investors will be watching cost trends closely this week, too, given that labor and freight expenses pinched profitability last quarter. Tariff rate increases might have added to that earnings pressure, as well, although management has predicted that trade skirmishes could help the retailer's market position.

All eyes will be on TJX's updated forecast for 2019 that incorporates management's best reading of the industry heading into the key holiday shopping season. Executives raised their outlook a year ago but might stay more conservative this time around if second-quarter sales trends disappoint. A strong result on Tuesday, on the other hand, would convince CEO Ernie Herrman and his team to boost their forecast that currently predicts sales gains of between 2% and 3% this year, compared to 6% in 2018.

Foot Locker's profit margin

Foot Locker shares took a sharp turn lower following its first-quarter report in late May. That announcement showed healthy sales growth but also implied weakening earnings ahead. The retailer has been spending aggressively on its e-commerce initiatives and improving the shopping experiences at physical stores, leading to a slight downgrade of its profit outlook. Investors are more concerned that the trade skirmishes between the U.S. and China will increase costs and force the chain to choose between reduced margins or slower sales gains.

On Friday, we'll find out how well Foot Locker is navigating that difficult cost environment and whether executives still believe the influx of innovative product releases from Nike and other suppliers will still support a second-straight year of rebounding growth following 2017's brutal sales decline. Look for pricing issues tied to tariff rates to figure prominently in the retailer's earnings announcement as Foot Locker looks ahead to the key holiday shopping season.

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Demitrios Kalogeropoulos owns shares of Home Depot and Nike. The Motley Fool owns shares of and recommends Nike. The Motley Fool has the following options: short August 2019 $195 calls on Home Depot and long January 2021 $120 calls on Home Depot. The Motley Fool recommends Home Depot, Lowe's, and The TJX Companies. The Motley Fool has a disclosure policy.


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