The decade-long bull market may be showing signs of slowing down, but — from week to week —those signs disappear. And this holiday-shortened week was one where arguments can be made that not only has this market been fully resuscitated from the December lows, it has tons of gas left in the tank.
On Thursday stocks closed higher, led by a 100 point rise in the Dow Jones Industrial Average as investors prepare for the bevy of corporate earnings that’s expected in the coming weeks. Expectations are high, thanks to the Fed’s decision to hold interest rates steady. Investors were also excited by the strong market debuts from Pinterest (PINS) and Zoom (ZM), among other notable recent IPO filings. The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all closed near record territory.
Just how close? The S&P 500 index is just 25 points, or 1%, shy of its all-time high. The Nasdaq stands at about 100 points away, or just 1.4%, from its record close, while the Dow stands just 270 points away, or 1% shy of its Oct. 3 closing peak. Investor appetite for equities remain strong, despite the the persistent wrangling that we see between the two major political parties about the state of the U.S. economy.
The question is, can this rally be sustained, or will the market suffer another correction as we experienced in the last three months of 2018? In other words, what will be the next catalyst to drive stocks higher beyond their record territories? There are arguments for both sides. Given the high expectations that I’ve discussed, it’s likely that a lot of good news has already been priced in to the market. At the same time, global markets — namely Europe and China — have yet to fully rebound.
Any good news that assuages fears about a global economic slowdown could be the catalyst investors who are on the sidelines are waiting for. But as has been the case for most of the year, investors remain encouraged by the fact that the U.S. economy continues to strengthen. And the upcoming earnings reports should reflect that. Here are the stocks to keep an eye on this for this week.
Baidu (BIDU) - Reports after the close, Monday, Apr. 22
Wall Street expects Baidu to earn 71 cents per share on revenue of $3.61 billion. This compares to the year-ago quarter when earnings came to $1.88 per share on revenue of $3.01 billion.
What to watch: What is it going to take to get BIDU stock rising again? Despite the broad market rally, BIDU shares have remained relatively at the same level they were when the markets drove lower to end 2018. But there’s still a lot to like with this Chinese tech giant. The company’s increased investments in its core search business and artificial intelligence technologies, while divesting non-core business, continues to pay off. From a valuation perspective, the company’s forward P/E ratio of 20.73 is about ten points lower than the industry average forward P/E of 30.19, which means BIDU stock is trading at a significant discount to its peers. Can its earnings results and guidance Monday narrow that gap?
Facebook (FB) - Reports after the close, Wednesday, Apr. 24
Wall Street expects Facebook to earn $1.63 per share on revenue of $14.97 billion. This compares to the year-ago quarter when earnings came to $1.69 per share on revenue of $11.97 billion.
What to watch: Is Facebook’s efforts to regain the enthusiasm investors once had for the social network giant working? Despite a bevy of controversies surrounding the company, subscriber growth is expected to continue in the first quarter. In Q4 monthly active users (MAUs) rose to 191 million on a year-over-year basis and 49 million from Q3 to 2.320 billion. Daily Active Users (DAUs) were 1.523 billion in Q4, rising 122 million year over year and 28 million sequentially, while representing 66% of MAUs. The key drivers have been the growing adoption of assets such as Instagram, WhatsApp and Messenger, particularly in Asia-Pacific. Can these numbers continue to grow in Q1 and how will advertisers respond to the company’s recent investments in video and music across the company’s platforms?
Tesla (TSLA) - Reports after the close, Wednesday, Apr. 24
Wall Street expects Tesla to report a per-share loss of 69 cents on revenue of $5.33 billion. This compares to the year-ago quarter when the loss came to $3.35 per share on revenue of $3.41 billion.
What to watch: Tesla stock has been under pressure following a first-quarter delivery miss earlier this month. The shares have lost more than 5% in the past 12 months, and more than 18% so far this year, compared to a 16% rise for the S&P 500 index. The reason? After two straight quarters of surprise profits, CEO Elon Musk has warned investors that a profit should not be expected this quarter, while saying the company could return to profitability in the second quarter. Wall Street is now bracing for a big loss, while focusing in the company’s quarterly operating margins. The company’s cash burn rate and ability to reach its 2019 shipment guidance will also be key areas of focus.
Microsoft (MSFT) - Reports after the close, Thursday, Apr. 25
Wall Street expects Microsoft to earn $1.00 per share on revenue of $29.84 billion. This compares to the year-ago quarter when earning were 95 cents per share on $26.82 billion in revenue.
What to watch: Shares of Microsoft have risen nearly 13% over the past three weeks, suggesting Wall Street is all in on the company’s long-term growth prospects, thanks to the company’s strength in its Commercial Cloud business. The company’s growth narrative is closely tied to its Azure Cloud platform, which competes with Amazon’s AWS. UBS analyst Jennifer Swanson Lowe, who has a $125 price target on the stock, remains optimistic on Microsoft heading into the quarter, anticipating commercial cloud revenue growth of 39% on the back of 66% growth in Azure and 26% revenue growth in Office 365 Commercial. On Wednesday investors will look to see if these growth trends can continue.
Amazon (AMZN) - Reports after the close, Thursday, Apr. 25
Wall Street expects Amazon to earn $4.72 per share on revenue of $59.65 billion. This compares to the year-ago quarter when earnings came to $3.27 per share on revenue of $51.04 billion.
What to watch: Is there such a thing as growth fatigue at Amazon? The e-commerce and cloud computing giant, which reached the $1 trillion mark last September, has seen its stock hover just under $1T, while trading in a tight range. Earnings could catalyze the stock near-term, but what remains important is the visionary stature of the company when compared to its technology peers. CEO Jeff Bezos, in his annual letter to investors last week, said the company can continue to grow its e-commerce footprint in various markets outside the United States where there has been minimal e-commerce market penetration. On Thursday the company will look to re-energize investors with results from its cloud and e-commerce dominance.
Starbucks (SBUX) - Reports after the close, Thursday, Apr. 25
Wall Street expects Starbucks to earn 56 cents per share on revenue of $6.31 billion. This compares to the year-ago quarter when earnings were 53 cents per share on revenue of $6.03 billion.
What to watch: Wall Street expects Starbucks’ Q2 revenue to rise. But concerns regarding whether the company has saturated its market persists. As of the end of the first quarter of fiscal 2019, the premium coffee chain operated 804 more company-operated restaurants and 852 more franchised restaurants. Starbucks is everywhere, which is a good thing for the company. Investors want growth, however. And with limited locations to place a restaurant, the company is tasked to deliver growth via other means. As such, positive same-store sales growth from the net addition of company-owned and franchised stores will give Starbucks the jolt investors are looking for.