The stock market kept up its positive momentum Monday morning, with the Dow Jones Industrials (DJINDICES:^DJI) climbing closer toward record territory after last week's roughly 250-point rise. As of 11:10 a.m. EDT, the Dow was up another 33 points, and the S&P 500 (SNPINDEX:^GSPC) rose to another all-time high as investors looked forward to a big week of earnings. Yet while most are squarely focused on Apple (NASDAQ:AAPL) and its first report as a Dow component, smart investors are looking past the tech giant's earnings to what is shaping up to be a much more critical indicator of the health of the stock market: reports later this week from oil giants Chevron (NYSE:CVX) and ExxonMobil (NYSE:XOM). Let's take a closer look at why Apple's report isn't the most important this week.
It's all about expectations
The key reason why Apple is unlikely to have a big market-moving impact on stocks after it reports its latest results this afternoon is that investors already have high expectations for the company. With those who follow the stock expecting roughly 30% earnings growth on a 23% leap in revenue, Apple is banking on the continued success of the iPhone 6 series, and all indications are that the company retained its stranglehold on the high-end smartphone market throughout the quarter and is poised to keep producing solid returns on its most lucrative franchise well into the future.
Expectations for the biggest oil companies in the U.S. are far less rosy. ExxonMobil, which reports Thursday, could see revenue drop by more than half from a year ago, producing an even bigger 60% haircut on earnings. The impact on Chevron, which is scheduled to announce its results on Friday, could be even worse, with many expecting earnings to fall by two-thirds from what it made a year ago.
Meanwhile, what Exxon and Chevron say about the future will be essential information for investors in evaluating the health of the energy industry. The oil majors' share prices have fallen along with those of their energy peers, but they haven't dropped as much as the decline in earnings would suggest. Trailing earnings multiples of roughly 10 look good, but forward multiples of 25 to 30 show both the magnitude of the decline in profitability and the belief among investors that any plunge in oil prices will be short-lived.
Investors already believe the business prospects of both Exxon and Chevron will surge dramatically in 2016, and that's a big part of why they haven't bid share prices down further. That's what makes this week critical for the entire stock market, as a surprise in either direction could move those stocks and the entire energy industry sharply.
All eyes will be on Apple today, and its results will capture headlines around the world. For the stock market to keep rising, though, what Exxon and Chevron say about energy stocks will make a much bigger difference right now and for the rest of 2015.