3 Things to Watch in the Stock Market This Week

By Demitrios Kalogeropoulos Markets Fool.com

Stocks rose by a full percentage point last week, buoyed by a strong initial crop of earnings reports. With that gain, theDow Jones Industrial Average(DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC)indexes are both up by about 2% so far in 2017 after rising by double-digits last year.

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^DJI data by YCharts.

Earnings seasons ramps up over the week ahead as hundreds of companies post results for the final quarter of 2016. A few of the most anticipated reports will come from Under Armour(NYSE: UAA) (NYSE: UA), Facebook (NASDAQ: FB), and Apple (NASDAQ: AAPL).

Apple goes for growth

Apple shares are back at all-time highs heading into Tuesday's report, which is expected to show that the consumer electronics titan returned to sales growth following three consecutive quarters of declines.

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iPhone SE. Image source: Apple.

Apple's iPhone business accounts for almost two-thirds of sales, and so investors will be keen to know how the franchise did over the critical holiday quarter. At its last quarterly check-in, iPhone unit sales fell by 5% and average selling prices declined as well. Those trends should improve to overall growth this quarter due to healthy demand for the iPhone 7 and iPhone 7 Plus.

Other data points worth watching will be gross profit margin, which CEO Tim Cook and his executive team forecast to decrease slightly to 38% of sales. Meanwhile, management has highlighted Apple's growing recurring revenue stream lately, including the 24% boost in its services segment last quarter. Yet the company's outlook for the coming quarter is likely to grab the most attention from investors, as it will imply either a return to shrinking sales or accelerating growth ahead.

Facebook's advertising volume

Investors weren't thrilled with social media giant Facebook's last quarterly report. Its operating results showed rock-solid growth, though, with revenue spiking 56% due to an almost-60% jump in advertising sales. Its massive base of daily active users also rose 17% to 1.18 billion as average revenue per user crossed the $4 mark worldwide.

Yet the stock declined as Wall Street fretted about an upcoming slowdown. "Expect to see ad revenue growth rates come down meaningfully," executives warned in early November. That's no surprise, given that advertising has jumped at a 50% pace over the past few years.

The company doesn't have much more room to increase the volume of ads that it drops into users' timelines, though, and so further gains will likely come from things like increased engagement, which don't pack the same punch as scaled-up delivery. That's why this week's focus will likely be on how management sees its advertising trends changing as the segment matures.

Under Armour needs a win

There's a disconnect between Under Armour's business and its stock price heading into Tuesday's report. Its awesome expansion streak makes it one of the fastest-growing companies in the S&P 500, and yet it was among the worst-performing stocks in the index last year.

The sports-apparel specialist could resolve that tension by posting accelerating sales gains along with firmer profitability this week. However, CEO Kevin Plank and his executive team aren't predicting a rebound in either area.

Image source: Getty Images.

In fact, sales growth is likely to stay at just above 20% this quarter and for the foreseeable future, marking a slowdown from the 30% pace it enjoyed as recently as the first quarter of 2016. A surprise slowdown in the U.S. market is offsetting gains internationally to keep Under Armour's growth pace about even with executives' goals.

What's really unnerved investors is the fact that profitability has declined to its lowest level on record as the company drives deeper into athletic shoe sales and spends aggressively to defend market share in the U.S. Those shifts convinced management to lower their earnings outlook through 2018 while preserving their long-term bullishness on the industry. This week's report might produce a large stock price swing if it alters those broad expectations in either direction.

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Demitrios Kalogeropoulos owns shares of Apple, Facebook, and Under Armour (C shares). The Motley Fool owns shares of and recommends Apple, Facebook, Under Armour (A shares), and Under Armour (C shares). The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool has a disclosure policy.