Sunday, May 26, 2024

What to Watch in the Stock Market This Week


Stocks managed to log solid gains last week but remain sharply lower since the beginning of 2016. The Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) are each down over 5% year-to-date and nearly 10% from 2015 highs.

^DJI ChartData by YCharts

The major economic news of the coming week is due out Friday when the government releases its jobs report for the month of January. Payrolls are expected to rise by about 200,000, marking a slowdown from December's 300,000 job gain. This announcement is especially important as it will inform the Federal Reserve's decision on whether to keep up its projected pace of interest rate hikes.

But earnings updates will likely hold the market's attention ahead of that report. Critical fourth quarter announcements are on deck from Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG), Exxon (NYSE:XOM) and Chipotle (NYSE:CMG) this week.

Monday, Feb. 1 -- Alphabet as the world's most valuable company
Google parent Alphabet kicks things off on Monday when the search giant is expected to post 15% higher sales and a 20% earnings pop to $8.10 per share. Alphabet shares are up over the last three months, bucking the negative market trend and putting it in position to steal Apple's crown as the world's most valuable company.

GOOGL Market Cap ChartData by YCharts

But what really matters are improving operating results, and Alphabet has delivered those in spades. Paid clicks rose 23% year-over-year in the third quarter on strength in mobile search advertising and the YouTube business. The company's operating margin also rose to 33% from 32%, despite significant foreign currency headwinds .

Given the global surge of mobile browsing and digital content consumption evident in Facebook's blockbuster results last week, Alphabet appears to have the wind at its back and should post significant sales and profit gains for its fourth quarter.

Tuesday, Feb. 2 -- How Exxon is adjusting to the oil price plunge
In contrast, Exxon is likely to post an epic operating slump when it announces earnings results on Tuesday morning. Consensus estimates call for the energy giant's sales to have plummeted by 41% as profit sinks 52% to $0.64 per share.


Image source: Exxon.

Sharply lower oil and gas prices combined to remove $5.1 billion of profit from Exxon's upstream earnings last quarter, and that's likely to be a major factor in the upcoming results. Oil prices fell 18% in fourth quarter 2015, from $45 per barrel down to $37. Investors will be listening for how Exxon intends to adjust to that sharply weakening operating environment -- especially considering that oil has dipped below $30 per barrel in the past few weeks.

Tuesday, Feb. 2 -- Chipotle's first-ever sales decline
Chipotle is due to announce something that shareholders haven't seen since its IPO in 2006: shrinking revenue. The restaurant chain is expected to post a 6% overall sales decline as customer traffic slumped in the wake of its food safety crisis.

Cmg Food

Source: Chipotle

The numbers will be sobering. Chipotle announced in early January that fourth quarter comparable-store sales were likely down 15% after peaking at down 37% at one point in December. Profit was likely cut in half to $1.86 per share .

Management may forecast a lost year of profit this week as the company works to regain consumer trust while bulking up its food safety standards.

Investors have seen indications from executives that they believe Chipotle will overcome this crisis and get back to strong growth. These include bulked up stock buyback spending and no change in the company's aggressive plans for new store openings. We'll find out on Tuesday whether that long-term optimism is backed up by improving customer traffic trends over the last several weeks.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Demitrios Kalogeropoulos owns shares of Chipotle Mexican Grill. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Chipotle Mexican Grill. The Motley Fool owns shares of ExxonMobil. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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