3 things to watch in the stock market this week
Stocks rose last week, as both the Dow Jones Industrial Average (DJINDICES: ^DJI) and the S&P500 (SNP INDEX: ^GSPC) gained 2% to rise further from their lows for the year. The S&P is back out of bear market territory for 2022, down 17%, while the Dow Jones is down 12%.
Positive earnings reports have supported this increase, but earnings season is really heating up over the next few trading days. McDonald’s (NYSE:MCD), Procter & Gamble (NYSE:PG)and Microsoft (NASDAQ: MSFT) are some of the most anticipated earnings reports to watch, and here we’ll take a closer look at their announcements.
1. Customer traffic at McDonald’s
Most investors following the stock expect McDonald’s to report a slight drop in sales in its Tuesday morning announcement. But this drop will not give the full picture of growth, as it will be influenced by fluctuations in exchange rates and the closure of the chain’s stores in Russia.
Instead, follow comparable store sales trends, which have been positive lately. Comps rose 12% in Q1, in fact, to easily beat rivals including Starbucks (NASDAQ:SBUX). People resonate with fast drive-thru and delivery services, and with its menu that offers a mix of classic staples and limited-time releases.
Investors are hoping to see evidence of continued market share gains, which would translate into positive customer traffic in most Mickey D geographies. But an even better reason to love the stock is market-leading profitability. enjoyed by the channel. Watch for operating profit margin to hit over 40% of sales again this week, more than double that of Starbucks or Dominoes (NYSE:DPZ).
2. Price increases at Procter & Gamble
The bullish thesis supporting Procter & Gamble stock in 2022 will be put to the test on Thursday. The consumer staples giant will report results for its fourth fiscal quarter, which runs through June.
P&G raised its sales outlook in the previous quarter, joining its rival Kimberly Clark by depicting a positive demand environment for brand name essentials such as laundry detergents, paper towels and household cleaning products. Investors have the opportunity to compare the two companies’ latest organic sales results this week. Growth in the last quarter for both giants landed at 10%.
P&G’s earnings aren’t growing as fast, and that’s a potential warning sign for the new fiscal year ahead. The company will need to show that it can raise prices without sacrificing sales volumes for the stock to continue beating the market. Wall Street could also demand a positive outlook for fiscal 2023 when P&G releases its first official guidance on Thursday.
3. The PC business at Microsoft
Concerns abound in Microsoft’s fourth quarter report on Tuesday. While its cloud services business has likely held up well in recent months, other divisions have come under more pressure. Look for weaker demand in the PC segment, for example, as consumers return to work in the office. Microsoft could also start to see a drop in sales in the games division.
But its broader prospects are bright. Microsoft is exposed to several major growth trends, including the transition to digital and hybrid work environments. Its ongoing acquisition of ActivisionBlizzard will establish it as a key on-ramp to the metaverse that will eventually go beyond the game.
Watch leaders highlight these avenues for growth, even if they are cautious about short-term growth ahead.
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Demitri Kalogeropoulos holds positions at Activision Blizzard, McDonald’s and Starbucks. The Motley Fool holds positions and recommends Activision Blizzard, Domino’s Pizza, Microsoft and Starbucks. The Motley Fool recommends the following options: $85 short calls in July 2022 on Starbucks. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.