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In this space, I’ve worried about what might happen to the broad market when the earnings calendar lightened. Strong earnings reports helped the market during earnings season. My concern was what might happen when the focus returned to external factors like trade wars and the macroeconomic cycle.
On that front, however, it has been so far, so good. The S&P 500 sits just off YTD highs. The index has recovered all of the losses from the sharp December sell-off, though it still sits below early October (and all-time) highs.
With the next earnings season still about five weeks away, it will be interesting to see if bullishness holds until then.
The earnings coming next week, while not likely to move the entire market, could help on that front. Earnings reports from leaders in three key sectors will show the health of those industries. As important as those industries are to the economy as a whole — and the market as a whole — the earnings calendar next week could matter more than it appear at first glance.
General Mills (GIS)
Earnings Report Date: Wednesday, March 20, before market open
General Mills (NYSE:GIS) looks awfully dicey ahead of its fiscal-third-quarter earnings report on Wednesday morning. It was a year ago that GIS stock plunged after disappointing guidance. By December, GIS was trading at a six-year low.
And yet the stock has rallied sharply since. General Mills stock has risen nearly 30% off those lows. And while GIS looks cheap, the risks seem obvious. Branded CPG players have struggled badly of late: Kraft Heinz (NASDAQ:KHC) and Campbell Soup (NYSE:CPB) are just two of the stocks that have dropped sharply after disappointing earnings reports.
General Mills is going to need strong earnings next week to avoid a similar fate, particularly after the recent rebound in its share price. That seems likely to require strength in the Blue Buffalo business acquired last year. Strength there could drive investor confidence that General Mills can be successful pivoting away from weaker categories like cereal and yogurt. Any stumble, however, and GIS will have a long way to fall.
Earnings Report Date: Wednesday, March 20, after market close
For chipmaker Micron Technology (NASDAQ:MU), fiscal-second-quarter earnings may not lead to the fireworks investors might be expecting. MU stock fell sharply in the second half of 2018, as did many semiconductor stocks. Even with 24% gains so far this year, however, investors remain skeptical: Micron still trades at barely over 6x forward earnings.
The concern here is that Micron earnings are declining — and will continue to decline going forward. Analysts are projecting a sharp drop in EPS: $1.70 this quarter against $2.82 the year before. At the moment, that trend is expected to continue into fiscal 2020 as well.
It seems unlikely that Micron can reverse the narrative with a single earnings report. But earnings next week could at least convince investors that the worst is over – and that the company is reacting well to industry changes.
Meanwhile, management commentary on demand, supply, and pricing will be closely watched across the sector. Stocks like Western Digital (NASDAQ:WDC) and Seagate Technology (NASDAQ:STX) could move on Micron earnings next week. And a truly strong quarter from Micron could add to the growing sense that the bottom is in for chip stocks.
Earnings Report Date: Thursday, March 21, after market close
Nike (NYSE:NKE) heads into earnings next week in a very different manner. NKE trades just off an all-time high. The question for Nike is whether it can keep the momentum going, after a string of impressive earnings reports.
There are questions for the rest of the market as well. The first is whether investors can push the stock any higher. NKE isn’t cheap, at almost 28x forward earnings. And it will be interesting to see whether the market puts a ceiling on even such an attractive business. If it does, that could signal an increasing focus on valuation over growth.
The second is just how strong Nike sales are in North America, in particular. Ahead of a series of consumer earnings reports next month, Nike earnings could signal the willingness of consumers to spend up. Nike’s sneakers — especially those on the higher end — are hardly discretionary. Any weakness in Nike sales could signal that consumer spending might be headed for a tightening.
To be sure, Nike earnings next week aren’t likely to move the market. But they could give investors a hint a few weeks before the earnings reports arrive that can.
As of this writing, Vince Martin has no positions in any securities mentioned.