3 Things to Watch in the Stock Market This Week

By Markets Fool.com

Image Source: Getty.

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Stocks fell last week, with the Dow Jones Industrial Average(DJINDICES: ^DJI) andS&P 500 (SNPINDEX: ^GSPC)each ticking down by nearly a percentage point. That left indexes in solidly positive territory for the year, though, up about 6%:

^DJI data by YCharts.

The week ahead promises a few important earnings reports, including from lululemon athletica (NASDAQ: LULU) and Ambarella (NASDAQ: AMBA), along with a highly anticipated data release on the economy.

1. Lululemon aims for profit gains

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Lululemon's stock is likely to be volatile around its earnings release this week, given that its business is going through major changes right now. On the positive side, revenue growth has been solid, with comparable-store sales up 3% at stores last quarter and e-commerce revenue up 17%. The yoga-inspired apparel giant is back to enjoying market-beating growth -- even if it's not at the 20% (and higher) pace investors saw in 2012.

However, profitability is at a depressing five-year low. Gross profit margin declined last quarter to 48% of sales, down from nearly 60% in late 2011.

LULU Gross Profit Margin (TTM) data by YCharts.

If Lululemon can demonstrate pricing power by showing improvements in both profit margins and customer traffic, CEO Laurent Potdevin and his team will add heft to their claim that the turnaround is gaining steam. On the other hand, if either metric worsens, the stock is likely to take a step back from its current all-time high.

2. Ambarella diversifies its camera tech

Ambarella, which specializes in the type of low-power video processing tech found in surveillance, drone, and wearable cameras, posts its quarterly results after the market closes on Thursday. The stock is on fire lately -- up 60% in the last three months as investors have found reasons to be optimistic about the HD video market. GoPro, one of Ambarella's biggest customers, said in July that it is seeing healthy consumer demand in the industry and management forecast a return to profitability in the holiday quarter.

Image source: Getty Images.

Wall Street isn't expecting much in the way of good news from Ambarella this week, though. Sales are forecast to drop by 24% -- even worse than last quarter's 20% decline. Earnings will likely dive, too, as the company ramps up R&D spending in response toincreased competition. Shareholders should receive important updates on the state of the volatile sport camera market, as well as on management's initiatives to diversify into other areas like surveillance and security cameras.

3. The economy adds jobs

The biggest economic report of the month, on job growth, is slated for release before the market opens on Friday morning. This publication is likely to drive even more volatility than usual because it is the last reading on employment that Federal Reserve officials will get before their mid-September monetary policy meeting. Especially strong job and wage gains could tip the Fed into announcing its second interest rate hike in a decade following its two-day meeting that ends on Sept. 21.

Economists project that the economy added 160,000 jobs last month, down from the 255,000 figure from July, as the unemployment rate ticks down to 4.8% from 4.9%. Beyond those headline numbers, investors should keep an eye on wages, which according to June jobs reportgrew by a healthy 2.6%.

The jobs release will also include revisions to prior months, and so it's useful to focus on longer trends rather than a single month's result. With that in mind, the growth trend over the past three months has been 190,000, jobs and any sharp deviation from that average would likely move stock indexes this week.

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Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Ambarella, GoPro, and Lululemon Athletica. 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.