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3 Things to Watch in the Stock Market This Week

By Demitri Kalogeropoulos – Oct 25, 2020 at 6:00AM

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Apple is one of several highly anticipated operating reports on the way as earnings season heats up this week.

Stocks dropped last week as investors digested a flood of earnings reports and reacted to the shifting outlook for new economic stimulus support for the U.S. economy. Both the Dow Jones Industrial Average and the S&P 500 shed less than 1%. The S&P is in solidly positive territory for 2020, while the Dow is down slightly.

Several widely owned companies will announce operating results over the next few trading days, including eBay (EBAY -0.33%), Apple (AAPL 1.37%), and Starbucks (SBUX 0.24%). Below we'll take a look at the key trends that might send their shares moving this week.

An engineer works on a computer chip.

Image source: Getty Images.

eBay's sales volumes

Investors are optimistic heading into Wednesday's announcement from eBay. The online marketplace's last operating update contained plenty of good news, including surging demand across its product categories while consumers shifted spending to online channels.

Investors are looking for more robust sales gains in Q3 even though growth will inevitably slow from last quarter's 29% volume spike. But eBay should still notch gains of at least 14%, according to the latest outlook from CEO Jamie Iannone and his team.

It will be just as interesting to see if eBay continues to pad its profitability lead over rivals like Walmart, which will allow for increasing capital returns to shareholders from this asset-light business. eBay will offer its final official update on the 2020 growth outlook on Wednesday, too.

Apple's iPhone updates

With new products like streaming music and TV platforms, Apple is transitioning its business into more of a service focus. But investors will still be closely following its hardware sales in Thursday's earnings announcement. Preorders for the new lineup of iPhones have started rolling in, after all, in what could be a massive refresh cycle for its biggest business segment.

The new iPhone releases may put pressure on Apple's short-term profit margins, which is a hit the company would be willing to take if it means a bigger base of people in its ecosystem. Look for CEO Tim Cook and his team to hint at those trade-offs when they discuss their outlook for the key holiday shopping season ahead and for fiscal 2021, which began in early October.

Starbucks' growth outlook

A lot has changed since Starbucks last updated investors about its growth outlook in late July. Executives at the restaurant chain said back then that it might take over a year for sales and profitability trends to recover from the pandemic slump, which forced sales down 38% in the fiscal third quarter.

Expectations are for those declines to moderate significantly when the chain announces Q4 results on Thursday, but it's not clear whether Starbucks is on a faster rebound pace. McDonald's recently returned to sales growth in the core U.S. market, which suggests an improved selling environment in recent weeks. However, the fast-food giant had a more modest decline during COVID-19 closures.

We'll find out this week if management still sees late fiscal 2021 as the turning point for full recovery. Thursday's report will also reveal whether Starbucks is engaged in an expensive advertising and marketing battle with rivals like McDonald's, which would pressure operating margins for the wider industry, especially if the recession stretches into the new calendar year.

Demitri Kalogeropoulos owns shares of Apple, McDonald's, and Starbucks. The Motley Fool owns shares of and recommends Apple and Starbucks. The Motley Fool recommends eBay and recommends the following options: long January 2021 $18 calls on eBay, short January 2021 $37 calls on eBay, and short November 2020 $85 calls on Starbucks. The Motley Fool has a disclosure policy.

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