By Wallace Witkowski, MarketWatch

Retailers in focus as Wal-Mart, Home Depot report results

As earnings season winds down, investors will be keeping a sharp eye on whether financial stocks and other risk-on plays can maintain their recent momentum, and on retail stocks, which begin reporting in earnest in the coming week.

Stocks finished Friday higher with closing records (http://www.marketwatch.com/story/dows-record-run-could-get-taken-out-ahead-of-long-holiday-weekend-2017-02-17) from the Dow Jones Industrial Average , the S&P 500 index , and the Nasdaq Composite Index . All three benchmarks finished the week nearly 2% higher.

Nearly 50 companies on the S&P 500 report earnings during the Presidents Day holiday-shortened week (http://www.marketwatch.com/story/which-markets-will-be-closed-on-presidents-day-2017-02-16) with an emphasis on traditional retailers, including Dow components Wal-Mart Stores Inc.(WMT) and Home Depot Inc.(HD)

More than 80% of the S&P 500 has reported earnings this season with gains tracking at 4.6% from a year ago, in what would be the first two season of consecutive year-over-year earnings growth since early 2015, according to John Butters, senior earnings analyst at FactSet. Also, companies are issuing fewer than average outlooks that fall below the Wall Street consensus: 68% of outlooks fall below the consensus compared with the five-year average of 74%, according to FactSet data.

As stocks continue to carve out records and earnings return to a growth cycle, the question is how much more of a continued appetite will investors have for risk-based assets that have been outperforming as of late.

"We need to see if financials can hold their gains and how risk assets do coming out of earnings," said Sahak Manuelian, managing director of equity trading at Wedbush Securities, in an interview. "If you look at what has been leading, you see there is investor appetite for risk."

S&P 500 Sector          % change since election  % change since inauguration 
Financials                       22.5%                      6.1% 
Industrials                      13.0%                      3.2% 
Materials                        11.4%                      3.4% 
Tech                             10.5%                      5.7% 
Consumer discretionary           10.3%                      3.1% 
S&P 500                          10.1%                      3.7% 
Health Care                      7.8%                       4.9% 
Telecom                          7.4%                       -3.1% 
Real Estate                      3.6%                       1.8% 
Consumer staples                 3.2%                       3.7% 
Energy                           3.0%                       -3.4% 
Utilities                        1.2%                       1.6% 

Financial stocks will also be the focus of Ryan Detrick, senior market strategist for LPL Financial, in the coming week. Recently, Goldman Sachs Group Inc.(GS) closed at a record high (http://www.marketwatch.com/story/goldmans-stock-surges-toward-first-record-close-in-over-9-years-2017-02-14) above its previous high set in 2007, but that's been a bit of an outlier. While the financial sector has rallied since the election, Detrick notes that the sector as a whole is still below its 2007 peak.

"They've had a big rally but they've underperformed since the financial crisis, so finally you're seeing outperformance," Detrick said in an interview. "Clearly, for the near-term, they're overextended, but potentially there is still a good amount for them to outperform."

"There's so much momentum, it's incredible: We want to see if [stocks] hold these levels," said Wedbush's Manuelian. "There may be short-term weakness on rhetoric [out of Washington, D.C.]," However, Manuelian expects to see demand to bounceback following any short-term pullbacks, particularly in leaders.

Manuelian also cited health-care stocks, which he said "got beaten up in the face" last year, as a sign that investors are once again in a risk-on mood given their volatility over the focus on rolling back drug pricing.

Read: How President Trump's stock-market performance in his first 30 days ranks (http://www.marketwatch.com/story/how-president-trumps-stock-market-performance-in-his-first-30-days-ranks-2017-02-17)

Retail earnings reports to cast attention on battered subsector

Heading into the week, retail stocks will also fall under heavy scrutiny as several traditional retailers report earnings.

With the exception of Home Depot, retailers scheduled to report have underperformed benchmarks and seen their shares punished since the election, mostly from weak forecasts following a stale holiday season.

Retailer                % change since election  % change since inauguration 
Wal-Mart                         -1.3%                      1.9% 
Home Depot                       14.4%                      4.5% 
Macy's Inc. US:M                -15.8%                      8.1% 
TJX Cos. US:TJX                  4.8%                       2.3% 
Nordstrom Inc. US:JWN            -14.7%                      2.9% 
Kohl's Corp. US:KSS              -5.3%                      3.2% 
L Brands Inc. US:LB             -12.5%                      -5.7% 

While the bar has been set low because of poor outlooks coming out of the holiday shopping season, Manuelian expects investors to focus on margins, and CEO chatter regarding Trump's border tax rhetoric.

From a data standpoint, Markit issues its purchasing manager's index for February on Tuesday, while January existing-home sales and minutes from the Federal Reserve's latest policy meeting comes out Wednesday. In addition to jobless claims on Thursday, the Chicago Fed will release its national activity index for January, and on Friday comes January new home sales and the February consumer sentiment index.

Notable earnings reports scheduled

Report date     Company/ticker (FactSet EPS / revenue estimate) 
Mon., Feb. 20   Stock markets closed for Presidents Day holiday 
Tues., Feb 21   Wal-Mart ($1.29 / $131.06 billion) Home Depot ($1.33 / $21.79 billion) Medtronic PLC US:MDT  ($1.11 / $7.22 billion) Macy's ($1.95 / $8.59 billion) First Solar Inc. US:FSLR  ($1 / $404.4 million) 
Weds., Feb 22   TJX ($1 / $9.44 billion) HP Inc. US:HPQ  (37 cents / $11.81 billion) Southern Co. US:SO  (32 cents / $4.41 billion) Host Hotels & Resorts Inc. US:HST  (14 cents / $1.31 billion) Newmont Mining Corp. US:NEM  (34 cents / $1.75 billion) 
Thurs., Feb 23  Hewlett Packard Enterprise Co. US:HPE  (44 cents / $12.07 billion) Nordstrom ($1.15 / $4.35 billion) Kohl's ($1.33 / $6.21 billion) L Brands ($1.90 / $4.49 billion) Public Storage US:PSA  ($1.89 / $657.7 million) Chesapeake Energy Corp. US:CHK  (7 cents / $2.04 billion) Apache Corp. US:APA  (7 cents / $1.5 billion) Transocean Ltd.US:RIG  (6 cents / $812.1 million) Hormel Foods Corp. US:HRL  (45 cents / $2.28 billion) Intuit Inc. US:INTU  (27 cents / $1.03 billion) Iron Mountain Inc. US:IRM  (28 cents / $935.8 million) 
Fri., Feb. 24   Foot Locker Inc. US:FL  ($1.32 / $2.11 billion) Public Service Enterprise Group Inc. US:PEG  (52 cents / $2.71 billion) Cabot Oil & Gas Corp. US:COG  (1 cent / $352.8 million) 
 

(END) Dow Jones Newswires

February 18, 2017 08:02 ET (13:02 GMT)