3 things to watch in the stock market this week – Nasdaq | Region & Cash

STocks rose last week as both Dow Jones industry average (DJINDICES: ^DJI) and the S&P500 (SNPINDEX: ^GSPC) rose 2% to climb higher from yearly lows. The S&P is back out of bear market territory for 2022, down 17%, while the Dow is down 12%.

Positive earnings reports supported this rally, but earnings season is about to get really hot in the next few trading days. MC Donalds (NYSE:MCD), Procter & Gamble (NYSE:PG)and Microsoft (NASDAQ:MSFT) are among the most anticipated earnings reports, and here we will take a closer look at their announcements.

1. Customer traffic at McDonald’s

Most investors who follow the stock are expecting McDonald’s to report a slight drop in sales in its announcement Tuesday morning. However, this drop will not provide a full picture of growth as it will be affected by exchange rate fluctuations and the closure of the chain’s stores in Russia.

Instead, follow the sales trends of similar stores that have been positive lately. Comps actually rose 12% in the first quarter, easily beating competitors including Starbucks (NASDAQ:SBUX). People resonate with the speedy drive-through and delivery services, and the menu, which offers a mix of classic staples and limited-time releases.

Investors are hoping for evidence of continued market share gains, which would be reflected in positive customer traffic across most of Mickey D’s regions. But an even better reason to like the stock is the market-leading profitability the chain enjoys. Watch as operating profit margin tops 40% of sales again this week, more than double Starbucks or dominoes (NYSE:DPZ).

2. Price increases at Procter & Gamble

The bullish thesis underpinning Procter & Gamble stock in 2022 will face another test on Thursday. The consumer goods giant is set to announce results for its fourth fiscal year, which runs through June.

P&G raised its revenue guidance in the previous quarter and joined the competitor Kimberley Clark when describing a positive demand environment for branded products such as detergents, paper towels and household cleaning products. Investors have the opportunity this week to compare the latest organic sales results from both companies. Growth for both giants was a staggering 10% in the most recent quarter.

P&G’s earnings aren’t growing that fast, and that’s a potential red flag for the upcoming new fiscal year. The company needs to show it can raise prices without sacrificing sales volume for the stock to continue beating the market. Wall Street could also call for a positive outlook for fiscal 2023 when P&G releases its first official guidance on Thursday.

3. The PC business at Microsoft

There’s no shortage of concerns feeding into Microsoft’s Q4 report on Tuesday. While the cloud services business may have held up well over the past few months, other business areas have come under more pressure. For example, watch for weaker demand in the PC segment as consumers return to the office. Microsoft could also see lower sales in its gaming division.

But its broader perspective is bright. Microsoft faces several major growth trends, including the shift toward digital and hybrid workspaces. The upcoming takeover of Activision Blizzard will establish it as a major gateway to the metaverse eventually moving beyond gaming.

Make sure executives emphasize these growth avenues, even as they exercise caution about the near-term growth picture.

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Demitri Kalogeropoulos has positions at Activision Blizzard, McDonald’s and Starbucks. The Motley Fool has positions in and recommends Activision Blizzard, Domino’s Pizza, Microsoft, and Starbucks. The Motley Fool recommends the following options: short July 2022 $85 calls at Starbucks. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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