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Earnings season is winding down — and that doesn’t seem like a good thing. Since May 3, roughly when the earnings calendar peaked, the S&P 500 has dropped more than 4%. Without strong earnings reports as a catalyst, investor attention has turned to external factors.
Those include fears of a trade war, which augment broader worries that the economy, and the market, may be nearing a peak. Earnings reports have been strong enough to support new all-time highs: three-quarters of the S&P 500 components that had reported through May 10 beat consensus earnings estimates.
The question is what comes next.
The earnings calendar this week likely isn’t enough to move the market. But several key earnings reports could highlight the nature of the challenges facing key sectors at the moment — and how those industries plan to respond. A key retailer will try and follow the strong trend set by leaders like Walmart (NYSE:WMT) and Target (NYSE:TGT). The biggest name in one of tech’s once-hot sectors aims to reverse recent weakness. And a Chinese growth stock is one of several companies that should not only give more detail on that country’s economy, but show where investor sentiment sits at the moment.
In a clearly nervous market, there’s plenty to keep an eye on next week.
Earnings Report Date: Tuesday, May 28, before market open
It has unsurprisingly been a tough stretch for Nio (NYSE:NIO). The electric vehicle company often is referred to as the Tesla (NASDAQ:TSLA) of China. Tesla shares are plunging — and so are many Chinese issues. NIO has fallen 60% from early March highs and sits 37% below its IPO price.
That obviously sets up a key earnings report for Nio on Tuesday morning. But it’s not the only struggling Chinese stock looking for a catalyst. Momo (NASDAQ:MOMO) also reports on Tuesday — and has lost one-third of its value since early April. The next day, 58.com (NYSE:WUBA) will try and get back some of the 20% it has lost in just the last three weeks.
The three reports set up an interesting test case for Chinese stocks. Strong reports haven’t helped the likes of Alibaba (NYSE:BABA) and JD.com (NASDAQ:JD) — but the group as a whole has become even cheaper. If any of the three companies reporting next week can top expectations, will investors see that as a chance to buy the dip? Or is there basically nothing China’s publicly traded companies can do to change sentiment at this point?
Palo Alto Networks (PANW)
Earnings Report Date: Wednesday, May 29, after market close
If any company can reverse the sector’s trend, it’s Palo Alto. But even strong earnings may not be good enough. Palo Alto posted a blowout Q2 — but as I wrote at the time, the headline beat obscured real concerns about valuation.
That valuation has come in, but the broader cybersecurity opportunity remains. And so PANW stock, too, looks like a bit of a test case. Do investors rush in if Palo Alto can post a beat-and-raise third quarter? Or are the cheaper multiples now assigned PANW the new normal?
Dollar General (DG)
Earnings Report Date: Thursday, May 30, before market open
Retail earnings for the most part have been solid. Walmart stock moved higher after its earnings beat, though the gains didn’t hold. Target got an enormous boost after an even more impressive quarter.
That puts pressure on Dollar General (NYSE:DG) stock to step up as well. Both DG stock and rival Dollar Tree (NASDAQ:DLTR) report on Thursday morning, and there’s really no excuse for anything short of another beat. The economy is strong enough and retail is strong enough. Both Dollar General and Dollar Tree took some share from Walmart earlier this decade, one reason why that giant’s same-store sales growth slowed.
Any weakness from the dollar stores might suggest that Walmart — and maybe even Target — are taking those customers back. Meanwhile, few retailers can give a more direct, and more broad, picture of tariff impacts, meaning that likely will be a focus of discussion on post-earnings conference calls.
After reaching all-time highs earlier this month, DG stock, in particular, isn’t necessarily priced for much in the way of disappointment. Dollar General is unquestionably a wonderful stock, one I’ve recommended for some time and as an investment that can be held for decades. But from a short-term standpoint, Dollar General stock has little room for error on Thursday.
As of this writing, Vince Martin has a bearish options position in Tesla. He has no positions in any other securities mentioned.