Wall Street rebounded from early losses on Monday morning, finishing the day on a mixed note. The Dow Jones Industrial Average (^DJI 0.01%) and S&P 500 (^GSPC 0.70%) managed to post modest gains, and even the Nasdaq Composite (^IXIC 1.10%) dramatically reduced the size of its declines over the course of the day.


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Data source: Yahoo! Finance.

Earnings season is beginning to wind down, but there are still some high-profile stocks that have yet to report. Two of the most important stocks in the market right now will be giving their earnings results early Tuesday, and that's why investors should be watching Home Depot (HD -0.55%) and Walmart (WMT 0.83%) extremely closely as the retail stocks  prepare to release their latest financial reports.

Person with hands on head looking at stock charts on four-screen monitor.

Image source: Getty Images.

Feeling at home

Home Depot was one of the stocks that saw big intraday moves on Monday. Initially falling as much as 1%, the home-improvement retailer ended up rebounding to post a better than 1% gain on the day.

Yet what many investors are anxiously awaiting is how well Home Depot can capitalize on continued interest in home renovation and maintenance. Most of those following the stock expect Home Depot to see at least a 10% rise in earnings during its fiscal second quarter from year-ago levels, with sales picking up 7% year over year.

If those growth rates seem a little tepid in comparison to Home Depot's past performance, it's important to put last year's numbers into context. Sales a year ago soared 23% compared to the corresponding quarter in calendar 2019, as those dealing with lockdown measures made massive investments in their homes in order to weather the pandemic. Profits were up nearly 25% year over year. Now, with those investments having borne fruit, some homeowners are continuing to make improvements, but many will be satisfied with their efforts to date.

Walmart makes its move

Shares of Walmart finished Monday up slightly less than 1%. The retailer will announce its second-quarter financial results before the market opens on Tuesday.

Investors have reasonable expectations from Walmart after a blockbuster performance a year ago. Earnings should be roughly flat from the second quarter of last year, and sales are likely to ease lower by around 1% year over year. Again, comparisons are somewhat tough, as earnings jumped almost 80% in the year-ago quarter compared to the same period in calendar 2019 before the pandemic took hold.

There are a lot of uncertainties about Walmart right now. A strong economy should bolster consumer spending, but that sometimes translates into weakness for Walmart if consumers decide to spend up on pricier items from competitors like Target. Conversely, some fear that the recent rise in COVID-19 cases could start to eat into economic growth, and that seems increasingly reflected in consumer sentiment metrics.

From a longer-term perspective, the big question facing Walmart is whether its investments in bolstering its online e-commerce channel will pay off permanently. During the worst days of the pandemic, Walmart customers flocked to online ordering in order to get necessities. When given a choice to shop in person or online, however, it remains to be seen what Walmart shoppers will do. The numbers will say a lot about whether all of Walmart's efforts have been in vain or will produce lasting advantages.

Keep your eyes open

No matter what Home Depot and Walmart announce tomorrow, they're likely to move the entire market. With so much volatility lately, surprising news from either of these companies could have a dramatic impact on Wall Street.