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What to Watch in the Stock Market This Week

By Demitri Kalogeropoulos - Feb 28, 2016 at 6:43AM

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Major earnings announcements and a key report on the health of the economy are on tap for investors over the trading week of Feb. 29 through Mar. 4.

Stocks logged solid gains in the past week, which helped cut their year-to-date losses in half. The Dow Jones Industrial Average (^DJI 1.27%) and the S&P 500 (^GSPC 1.73%) each rose by 1.5% last week and are now down by 5% after having touched double-digit losses in early February.

^INX Chart

^INX data by YCharts

The next five trading days bring a few major earnings reports, along with fresh data on the health of the U.S. economy. Retailers Lumber Liquidators (NYSE: LL) and Costco (NASDAQ: COST) are set to post quarterly figures before the government releases a highly anticipated report on employment on Friday.

Monday, Feb. 29 – Lumber Liquidators' bad press
Hardwood flooring specialist Lumber Liquidators kicks things off with a fourth-quarter earnings report that could spark a large stock price swing. Shares are down 83% in the last year as the company has grappled with plunging comparable-store sales due to negative press surrounding the safety of some laminate flooring products that it used to source from China. Lumber Liquidators endured a 13% traffic dive in Q3 even though it slashed prices so low that gross profit margin plummeted to 30% of sales from 39% the prior year .

The negative press hasn't let up. Just last week the U.S. Centers for Disease Control issued preliminary findings from an investigation testing some of the China-sourced flooring. The final results are likely to show general respiratory risks around exposure to the product, the CDC said, along with a slight but still real risk of cancer. That's not good news for the company, since even though it no longer sells this type of flooring, Lumber Liquidators' legal liability could be steep.

Wednesday, March 2 – Costco's sales gains
Market-thumping sales growth is a key reason why Costco shares have dramatically outperformed those of rival Wal-Mart (WMT 1.85%), and we'll find out on Wednesday whether that performance gap carried on into the holiday quarter.

Source: Costco.

Costco has a low bar to meet. Wal-Mart recently announced just 1% higher comps in its stores and a 0.5% decline at its Sam's Club warehouses. In contrast, we know that Costco's comps for the critical shopping month of December were up 4 %.

Investors will also be watching two other key metrics on Wednesday: profits and warehouse growth. In Q3 Costco announced a surprising drop in earnings that was driven by short-term issues. Look for the retailer to get back to slight profit growth over the holiday quarter. Meanwhile, management is aiming for the biggest store-launching year yet, so we should get important updates on how that expansion promises to affect membership, sales, and profit growth in the coming years.

Friday, March 4 – Is the economy headed for a recession?
The biggest economic report of the month, on job creation, is due out before the market opens on Friday. This week's release carries even more significance than normal because it's the last one before the Federal Reserve's March meeting, in which officials will decide whether to raise interest rates again .

Job growth by month. Source: Federal Reserve Economic Data.

The economy has added an average of 230,000 jobs per month over the past three months. What's more, wages took an encouraging turn higher in January's report, rising 2.5%.

Despite those positive trends, financial markets have dropped in 2016 in part because investors fear a recession could be in the cards. Friday's jobs figures will, more than any other single data report, help clear up that confusion.

Demitrios Kalogeropoulos owns shares of Costco Wholesale. The Motley Fool owns shares of and recommends Costco Wholesale. The Motley Fool recommends Lumber Liquidators. 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)
^DJI
$33,761.05 (1.27%) $424.38
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$4,280.15 (1.73%) $72.88
Wal-Mart Stores, Inc. Stock Quote
Wal-Mart Stores, Inc.
WMT
$132.22 (1.85%) $2.40
Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
COST
$537.21 (0.94%) $5.01
LL Flooring Holdings, Inc. Stock Quote
LL Flooring Holdings, Inc.
LL
$10.51 (6.70%) $0.66

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

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