Stocks declined sharply last week as both the Dow Jones Industrial Average (DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC) shed 2%. The drop established new 2022 lows for the indexes, which are now down 11% and 16% to date, respectively.
Investors will get some key updates about the pace of consumer spending in the week ahead, with earnings reports on the way from Walmart (NYSE: WMT) and Home Depot (NYSE: HD). Palo Alto Networks (NASDAQ: PANW) is another stock worth watching over the next few trading days.
Let's take a closer look at these upcoming reports.
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Walmart's customer traffic
Investors have warmed up to Walmart's stock during the latest market slump, but that shift will be tested when the retailing giant reports its fiscal first quarter earnings on Tuesday morning. Investors have a few big questions heading into that announcement.
The first is whether Walmart is still seeing strong consumer spending trends even as economic growth slows. Comparable-store sales were up a robust 6% in the core U.S. market last quarter, and most investors are looking for just a modest deceleration this time around. Watch customer traffic, which rose 3% last quarter, as a key measure of underlying sales strength.
The other key concern is whether Walmart is still succeeding at using its scale to offer lower prices and a fuller selection of merchandise. Those assets helped the chain win market share through early 2022, and shareholders should see positive returns if the retailer can keep capitalizing on that competitive advantage.
Home Depot's customer traffic
Home Depot had an epic growth run through earlier phases of the pandemic. But investors are worried that the good times are about to end for the home improvement retailer. There's no shortage of concerns heading into Tuesday's earnings announcement, including a potential slowdown in residential spending due to rising interest rates. Inflation may be pressuring customer spending, too, especially compared to a year ago when federal stimulus measures were lifting the economy.
Today, most investors who follow the stock are bracing for Home Depot to report declining sales, with revenue landing at $36 billion compared to $37.5 billion a year ago.
CEO Craig Menear and his team will likely discuss the prospects for securing modest growth in 2022 after the business added $40 billion to its revenue base over the preceding two years.
In February, executives predicted roughly flat profitability and "slightly positive" comparable-store sales, but those forecasts might come down this week to reflect the softer selling environment in the home improvement market.
Palo Alto's outlook
Look for volatility in Palo Alto Networks' stock around its Thursday earnings release. The cybersecurity specialist's shares have swung wildly so far in 2022 as investors debate its long-term growth prospects. Demand for its services has jumped as more commerce moved online in recent years. But Palo Alto could see a slowdown ahead. And shares have seemed pricey, given its relatively weak earnings.
The company could easily earn that elevated valuation if it continues building its client base and its portfolio of services. Look for success here to show up in Palo Alto's sales metric, and in the average contract renewal size. Convincing existing customers to sign up for more offerings, plus the addition of new clients, is the company's surest path toward accelerating earnings growth.
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Demitri Kalogeropoulos has positions in Home Depot. The Motley Fool has positions in and recommends Home Depot and Palo Alto Networks. 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.
