3 Things to Watch in the Stock Market This Week

Stocks held close to flat last week, as the S&P 500 (SNPINDEX: ^GSPC) notched a slight gain and the Dow Jones Industrial Average (DJINDICES: ^DJI) fell modestly.

Both indexes moved by less than 0.5% for the week to remain near their highs so far in 2019:

^SPX data by YCharts.

First-quarter earnings season is kicking off with a few big names from across the tech and healthcare industries this week. Below, we'll look at the metrics that investors will be watching in the reports from Netflix (NASDAQ: NFLX), International Business Machines (NYSE: IBM) and Johnson & Johnson (NYSE: JNJ).

Netflix's user growth

Netflix kicks off its fiscal 2019 with first-quarter results after the market closes on Tuesday. The streaming giant brings plenty of positive momentum into this announcement, given that 2018 marked its fifth consecutive year of accelerating subscriber growth. Membership gains landed at 29 million last year, compared to 22 million in 2017.

Almost 9 million of those new streaming fans came in the fourth quarter, a seasonally strong period for Netflix. The first quarter is a similar story because TV viewing spikes during these colder months. That helps explain why CEO Reed Hastings and his team are predicting global additions of 8.9 million, an acceleration over the 8.3 million Netflix added a year ago.

A man watches TV while working on a laptop.

Image source: Getty Images.

Executives on Tuesday will discuss their original-content strategy, which lately has relied more on exclusive big-budget movies like Bird Box. Netflix is hoping the extra user growth these films generate will support improving cash flow trends, likely beginning in 2020. Look for analyst questions to come up regarding Disney's new streaming service, too.

Johnson & Johnson's sales outlook

Healthcare titan Johnson & Johnson announces its results on Tuesday. The company's last outing included many of the characteristics that attract investors to this stable industry giant. Core sales growth for the prior 12 months landed at 6.3%, to mark J&J's 35th straight year of gains by that metric. Earnings improved at a faster pace, thanks in part to a strong pipeline of drug releases. The dividend rose for a 56th consecutive year.

But the report raised questions about the company's 2019 outlook. Sales gains slowed in the final quarter of last year, after all. And CEO Alex Gorsky and his team predicted only the most modest gains for the year ahead, of between 0% and 1%.

Potential litigation claims tied to its talcum-powder product add another element of short-term risk to this usually stable blue-chip giant, so investors have good reasons to pay attention to what management says on Tuesday.

IBM's Red Hat plans

IBM has had a good 2019 so far, thanks to a surprisingly strong fourth-quarter earnings report and optimism about its acquisition of open-source software specialist Red Hat. But the stock's prospects for sustained rally will likely depend on progress in the tech giant's turnaround plan.

IBM last year finally broke out of a disappointing period of sales declines, as revenue inched higher by 1%. That doesn't mean its growth challenges are over, though. In fact, most investors who follow the stock expect sales to turn negative again in 2019, as non-GAAP (generally accepted accounting principles) earnings rise by less than 1%.

Management is hoping that the Red Hat acquisition, set to close later in the year, will help lift those results, starting in 2020. IBM needs a robust offering to compete with other entrenched software and cloud titans like Amazon, and this acquisition shows executives are willing to direct a big portion of its massive annual cash flow -- which last year reached $12 billion -- toward that goal.

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