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Earnings season gets intense next week at an intriguing time for the broad market. Choppy trading has dominated since a sell-off that began in July amid a series of major second-quarter earnings reports.
Broad market indices have since tried to retake past levels, only to fail on several occasions. A rally Thursday petered out. At the least, investors seem to be in “wait and see” mode. Next week, there will be plenty to look at.
Two of the market’s three most valuable companies release earnings reports next week. So do leaders in key sectors: Intel (NASDAQ:INTC) in semiconductors, Visa (NYSE:V) in payments, and Comcast (NASDAQ:CMCSA) and Verizon (NYSE:VZ) in telecommunications.
But the earnings calendar next week is highlighted by these three earnings reports to watch. Two of the world’s tech leaders will not only release quarterly financials, but could highlight the ongoing battle between growth and value in the markets. And fiscal first-quarter earnings from a consumer giant might affect a number of other stocks.
At the moment, this seems like a market waiting for direction. The earnings calendar next week may well provide that direction.
Procter & Gamble (PG)
Earnings Report Date: Tuesday, Oct. 22, before market open
Fiscal first quarter earnings from Procter & Gamble (NYSE:PG) are important for PG stock. Shares rallied sharply off early 2018 lows, gaining a whopping 75%. But they’ve since pulled back, dropping about 7% from all-time highs reached late last month.
Tuesday morning’s report could reverse that slide. A streak of four straight significant beats relative to Wall Street expectations suggests that P&G should be able to deliver a solid report — and re-inspire the confidence that led to the big rally in PG stock.
But P&G earnings matter to the rest of the market too. At 24x earnings, PG is one of many quality companies whose valuations look potentially questionable relative to growth expectations. And the gains in PG stock have come despite significant pressures on consumer product manufacturers.
Both aspects of the stock’s rise mean that investors should pay close attention to Tuesday’s report. Can P&G prove that its sector still can support growth? And will investors step in if the numbers are solid — or are valuation concerns rising even for the market’s best companies?
Earnings Report Date: Wednesday, Oct. 23, after market close
Like PG, Microsoft (NASDAQ:MSFT) stock might have valuation concerns at this point. It, too, is trading at a mid-20s P/E multiple despite growth expectations in the high-single-digits to low-double-digits.
And while MSFT stock hasn’t pulled back, its own significant multi-year run has stalled out of late. Resistance has held around the $140 level at which it currently trades.
An impressive fiscal fourth quarter report in July sent MSFT stock to all-time highs – and since then the stock has traded sideways. It wouldn’t be surprising to see a repeat play out next week. But if it doesn’t, the direction in which MSFT heads might well mimic the direction of the broader market in the coming weeks.
Earnings Report Date: Thursday, Oct. 24, after market close
It was only last year that valuation concerns seemed more prevalant among growth stocks like Amazon (NASDAQ:AMZN). Many investors saw AMZN at last year’s highs the same way others do MSFT and PG now: an unquestionably attractive business whose multiples priced in something close to perfection.
Those skeptics have been proven somewhat right. AMZN stock has traded sideways for roughly 15 months now. It sits over 10% below highs above $2,000, which have been reached on three separate occasions.
So here, too, the report looks informative both for the stock and the market as a whole. Can AMZN offset margin concerns even with pressure from one-day shipping? Do valuation concerns offset what is likely to be a strong report?
And how do investors react? There are many growth stocks out there that trade below their all-time highs — something which rarely has been the case during this bull market. How investors treat AMZN next week could signal whether investors view the pullback as a correction, or a buying opportunity. The response to Amazon earnings, then, could foreshadow how growth stocks are treated for the rest of earnings season.
As of this writing, Vince Martin has no positions in any securities mentioned.