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The earnings calendar stays full next week, as the focus shifts to retail. And while earnings reports so far this year have been good enough — the S&P 500 is up around 12% so far this year — earnings next week could be a challenge.
After all, expectations clearly are rising, but retail has been a choppy space over the last few years. Walmart (NYSE:WMT) got the sector off to a good start this week, but it remains to be seen whether its rivals can keep that momentum going with their own earnings next week.
Meanwhile, there are a few key earnings reports outside the sector as well. Several high-flying tech stocks will test the market’s appetite for risk and valuation and a Chinese giant will try and reverse its fortunes.
It has been “so far, so good” this earnings season, with the earnings calendar strong and the market responding in kind. If retail can continue that trend next week, the broad market gains should follow. If not, however, next week could signal an end to the initial bullishness that has greeted 2019.
Home Depot (HD)
Earnings Report Date: Tuesday, Feb. 26, before market open
Of all the reports on the earnings calendar next week, Home Depot (NYSE:HD) probably has the best chance of moving entire markets. Macy’s (NYSE:M), whose earnings report is the same day as that of HD, traditionally had been the bellwether in retail — but that’s no longer the case. Given the multiyear traffic issues facing Macy’s and other department stores, it might be Home Depot and rival Lowe’s (NYSE:LOW), which reports on Wednesday morning, that give the best read on consumer confidence.
Numbers from Home Depot and Lowe’s, then, should move other retail stocks as well. But they’ll also affect building products suppliers and distributors. That space has rallied in 2019 after an ugly second half of 2018. Good numbers from the home improvement leaders should signal more optimism ahead.
But any stumble from HD in particular, combined with disappointing existing home sales this week, could raise alarm bells across the industry. And some investors might even take a broader view, and wonder if weakness from the home improvement giants is a sign that the U.S. consumer finally is starting to tighten up on spending.
Earnings Report Date: Wednesday, Feb. 27, after market close
A simple look at the Square (NYSE:SQ) stock chart shows why Wednesday afternoon’s report is important. SQ stock has been on quite the roller-coaster ride, moving from $100 at the beginning of October to $50 by late December. It’s since regained half those losses in about two months. Obviously, a strong report is needed to keep that recent rally going.
But Square is just one of the dearly-valued tech stocks with earnings next week. Veeva Systems (NYSE:VEEV) and Workday (NASDAQ:WDAY) — both of which have higher price-to-revenue multiples than SQ’s 10.3x — release their earnings reports on Tuesday and Thursday, respectively.
The three reports could give a sense as to whether investors still are willing to pay 10x — or in VEEV’s case, 20x — revenue for the best “cloud” stories. If that’s not the case, that could suggest a market nearing a top, particularly with tax reform benefits being lapped in 2019.
Earnings Report Date: Thursday, February 28, before market open
Like housing stocks, Chinese stocks had a terrible second half of the year in 2018. The category, too, has rallied in 2019: online retailer JD.com (NASDAQ:JD) has benefited, gaining 17% YTD.
Strong earnings reports are needed to assuage trade war fears. And given that JD is the second-largest online retailer behind Alibaba (NYSE:BABA), its report is a big one not just for JD stock, but for the entire market.
Baidu (NASDAQ:BIDU) posted a solid Q4 in terms of revenue, though its shares are slipping amid worries about higher spending. It wouldn’t be a surprise to see a similar result at JD, whose rising operating expenses have hurt margins and profits in recent quarters.
But this is a stock that traded at $50 only a few months ago. If JD can show strong revenue growth and convince the market its investments are bearing fruit, there’s plenty of room for the stock to rally. And good news from JD.com should be more good news for other Chinese stocks as well.
As of this writing, Vince Martin had no positions in any securities mentioned.