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What to Watch in the Stock Market This Week

By Demitri Kalogeropoulos - Jan 24, 2016 at 6:08PM

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Earnings reports from Apple, Facebook, and Procter & Gamble will likely move markets when they publish over the trading week of Jan. 25 through Jan. 29.

Investors are in for an entertaining week, as some of the most influential stocks in the market will post earnings results over the next five trading days. These heavy-hitters include tech titans Apple (AAPL 2.14%) and Facebook (META 1.70%), along with consumer goods giant Procter & Gamble (PG 0.97%).

The Dow Jones Industrial Average (^DJI 1.27%) and the S&P 500 (^GSPC 1.73%) have both slumped out of the gate in 2016, falling 8% over the first few weeks. But what these three companies have to say about their holiday quarter results -- and their outlook for the year -- is likely to move markets. So let's look at three key questions that investors will have answered this week.

Tuesday, Jan. 26: Will the iPhone 6s disappoint?
Apple posts its earnings results after the closing bell on Tuesday. And the tech king accounts for a huge portion of the stock market's profit. Its expected earnings should produce 7% of all S&P 500 Q4 profits, in fact, even as it makes up less than 4% of the index's overall market capitalization.

Image source: Apple.

Concerns about slowing iPhone sales have helped push Apple's stock lower by 15% since late October. CEO Tim Cook at that time predicted that the iPhone business, which accounts for two-thirds of its sales, would grow over the holiday quarter despite going up against a 46% surge in the year-ago period.

Beyond smartphone demand, investors should keep an eye on gross margin, which will likely rise to 40% of sales from the prior year's 38%. That boost, plus aggressive stock buybacks, should produce EPS gains of as much as 6%, beating the expected 3% revenue improvement. Cook and his team will also likely provide updates on demand for the Apple Watch, which may have grown to a roughly $2 billion business over the holiday quarter.

Wednesday, Jan. 27: How far will Facebook's profitability drop?
Social networking king Facebook will announce Q4 earnings numbers on Wednesday afternoon. Investors have reason to expect strong sales growth, given recent stellar operating trends.

Image source: Facebook.

In what management described as "excellent" results, Facebook last quarter posted a 57% surge in advertising revenue as daily active users passed 1 billion. Mobile Internet browsing continued to power the company's results: The number of mobile users jumped 27% higher year over year .

Consensus estimates peg this quarter's sales growth at a massive 40%, up to $5.4 billion. Meanwhile, earnings should only rise by 26% to reach $0.68 per share. The significant gap between sales and profit growth -- which last quarter pushed operating margin down to 32% of sales from 44% a year ago -- comes from the long list of opportunities that CEO Mark Zuckerberg and his team see for spending on strengthening the business.

In October's conference call, they outlined a few of these initiatives, including video streaming within news feeds, messaging, and virtual reality. Investors will likely hear about progress in building up these services, along with updates on Facebook's long-term goals of extending Internet service to less-developed areas around the world.

Tuesday, Jan. 26: Can Procter & Gamble return to strong growth?
Consumer goods giant Procter & Gamble has been among the market's best performers through the stock market rout of early 2016. The fact that it sells staples like laundry detergent, shampoo, and paper towels makes it an attractive choice as worries arise over a slowdown in global growth. P&G's strong dividend likely helps as well.

Image source: Procter & Gamble.

Investors are hoping to see the company return to organic sales growth after shrinking last quarter. But even if it does book an overall organic gain, shareholders will want to see volume growth, and not just price hikes, make up a big part of that improvement.

P&G posts its results before the market opens, and consensus estimates call for a 16% revenue slide to $16.9 billion as earnings tick higher to $0.98 per share. Management's latest outlook for the fiscal year that ends in June pegs organic growth as coming in flat, or near flat.

Demitrios Kalogeropoulos owns shares of Apple and Facebook. The Motley Fool owns shares of and recommends Apple and Facebook. The Motley Fool recommends Procter & Gamble. 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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Stocks Mentioned

Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$33,761.05 (1.27%) $424.38
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$4,280.15 (1.73%) $72.88
Apple Inc. Stock Quote
Apple Inc.
$172.10 (2.14%) $3.61
The Procter & Gamble Company Stock Quote
The Procter & Gamble Company
$146.67 (0.97%) $1.41
Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
$180.50 (1.70%) $3.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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