After closing out an awesome October that delivered 8% stock market gains, the blue-chip indexes have taken a step back this month. Last week's losses pushed the S&P 500 (SNPINDEX:^GSPC) and the Dow Jones Industrial Average (DJINDICES:^DJI) down by more than 2% in November. Both indexes are now in slightly negative territory for the year.
At the top of the economic calendar for the coming week is a Wednesday release of the minutes from the Federal Reserve's October meeting. While investors know an interest rate boost is inevitable, it's not yet clear exactly when the central bank will begin raising rates. This week's report, due out at 2:00 p.m. EDT, could shift predictions toward the first hike in nine years coming as early as December.
Meanwhile, three retailers -- that together account for over $600 billion of annual sales – will post their earnings results over the next few trading days. What Wal-Mart (NYSE:WMT), Home Depot (NYSE:HD), and Target (NYSE:TGT) executives have to say about the third quarter could send their stocks swinging up or down. And their outlooks for the critical holiday quarter ahead might set the tone for the broader market this week.
Tuesday, Nov. 17 – Wal-Mart's low expectations
With its 32% loss so far, Wal-Mart is the Dow's biggest percentage-point loser of the year. Investors aren't happy about the megaretailer's latest growth trends: Comparable store sales rose by less than 2% in the second quarter.
But Wall Street really doesn't like the fact that profits are headed in the wrong direction. Operating income dove 10% last quarter and the retailer sliced its earnings expectations for the coming year as it seeks to improve the customer experience through changes like increased staffing and higher employee wages.
The stock's sharp drop might represent a good buying point for investors willing to wait for these long-term investments to pay off. In fact, customer satisfaction scores are already improving.
Prospective shareholders can at least look forward to being paid well for their patience: Wal-Mart's dividend yield has spiked to 3.4% from 2.4% at the start of 2015.
Tuesday, Nov. 17 – Home Depot's surging optimism
In contrast to the pessimism around Wal-Mart's business, investors are expecting to see plenty of good news in Home Depot's (NYSE:HD) third-quarter earnings release. Buoyed by rising spending in the home improvement market, the company beat Wall Street profit and sales expectations in each of the first two quarters. Management has also been surprised by the speed of that growth: Home Depot raised its 2015 outlook twice so far this year. Not only is the company trouncing most retailers with its 5% comps growth pace, but it is also outpacing its main industry rival, Lowe's.
Home Depot is achieving those gains by attracting market-leading customer traffic and scoring its highest average spending per shopper since 2006. Those positive trends are expected to push third-quarter sales up 6% to $21.8 billion as profits surge higher by 19% to $1.32 per share.
Wednesday, Nov. 18 – Target's improving profitability
The second-quarter results Target released in August looked great when matched up against Wal-Mart's. Its 2.4% comps growth, 1.6% customer traffic gains, and 0.2 percentage point contribution from online sales all beat its rival's figures. Target's profitability is also rising, thanks to sales growth in its high margin "signature categories" like clothing, baby, and home furnishings (gross margin expanded from 30% of sales to 31%).
Management forecast more of the same for the third quarter: Comps should grow by 1.5% as profitability ticks higher by 0.3 percentage points. Investors will want to see customer traffic continuing to improve even as online sales spike. But shareholders will be even more interested in what CEO Brian Cornell and his executive team has to say about the retailer's prospects during the crucial holiday shopping season.
Demitrios Kalogeropoulos owns shares of Home Depot. The Motley Fool recommends Home Depot. 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.