5 Stocks That Will Drive The Market This Week

Earnings from Netflix, Apple, Facebook, Amazon.com, and Microsoft will set the tone.

Apr 21, 2014 at 10:15AM
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After their best week since July, U.S. stocks opened little changed on Monday, with the benchmark S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES:^DJI) both up 0.22% at 10:15 a.m. EDT. This week is light on economic data, so expect corporate earnings to be investors' primary focus again -- in particular, technology company earnings. In the wake of a marked increase in volatility of the Nasdaq Composite (NASDAQINDEX:^IXIC) (including a correction in biotechnology stocks), this week will give the market a lot of new data against which to measure technology share valuations. Netflix is scheduled to report its first-quarter results after today's market close, followed by Apple (NASDAQ:AAPL) and Facebook on Wednesday. To round things out, Amazon.com and Microsoft (NASDAQ:MSFT) will chime in after Thursday's market close.

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If you're not sure why financial journalists and investors will be paying attention to these companies, consider that this group of five high-flying technology names alone weighs in at a combined market value of $1.1 trillion, or roughly 5% of the total U.S. equity market capitalization (yes, the aggregate value of every single publicly traded company U.S. company).

Those numbers alone don't convey all of the companies' influence, of course; indeed, the smallest one by market value -- Netflix, at roughly $21 billion -- is also expected to show the highest year-on-year growth in earnings per share (note the gaping divide in the following table between the growth rates of "new tech" and "old tech"):

 

Expected EPS growth rate, based on the consensus estimate

Netflix

+161%

Facebook

+100%

Apple

+1%

Microsoft

(13%)

Amazon.com

n/a

[The base EPS figure is negative.]

Source: S&P Capital IQ.

[Strictly speaking, Netflix is not part of the technology sector, but its dynamics are very similar, both in terms of business fundamentals and in how the stock is perceived.]

I'll be particularly interested in "old tech" stalwarts Apple and Microsoft this week. The former is not expected to announce any new products alongside its results; however, at the end of February, CEO Tim Cook promised that the company would update investors on its capital return program "within the next 60 days"; this is the perfect opportunity, with new Chief Financial Officer Luca Maestri making his first appearance. A year ago, Apple raised its share repurchases and dividends to $100 billion by the end of 2015, and that program is now more than half complete (by value). Without a new product announcement, another increase in the capital return program would placate investors.

At Microsoft, meanwhile, new CEO Satya Nadella has been doing a standout job since he took over the reins from Steve Ballmer in February. The market responded by sending the shares to a 14-year high in March. Nevertheless, much work remains to be done to turn this juggernaut around -- this week's results will provide more elements to assess Nadella's performance.

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Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Microsoft. 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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