The performance of the market on Thursday will most likely be volatile. We have had a nice run over the last five days with the S&P 500 trading higher by 2.50%, but after the Fed extended Operation Twist and lowered its projections for the remainder of this year it is hard to say how the market will react on Thursday. Two industries in particular, automotive and the retail drugs space will be potential market movers as two high-profile companies are scheduled to announce earnings.
On Thursday before the market opens Rite Aid Corporation (RAD) will announce its quarterly report. The company is expected to post a loss of $0.04 and revenue of $6.47 billion with same store sales of 3%. The expectations for this company would signal a move in the right direction for the company and is utterly important for the direction of the industry.
Walgreen (WAG) has been under heavy pressure over the last few days, losing 8% of its value since Monday, as the company saw an 11% drop in third-quarter earnings and a sales drop of 3.4%. If RAD announces weak earnings then it could signal a decline across the entire industry, affecting other companies such as CVS Caremark (CVS), and even slipping further down to affect the biotechnology industry. Of course, these losses may not occur all at once, but if RAD's quarter is weak I think it could have a negative effect throughout the space. Therefore, I think it is a stock to watch on Thursday and I further believe a successful quarter is necessary.
Carmax (KMX) is among the largest in terms of car sales, and gives investors an idea of trends in the ever important auto industry. The company sells predominately used cars, but have some new car stores as well, therefore giving a fairly accurate idea of trends within the auto space.
On Thursday, before the market opens, KMX will announce earnings. The company is expected to post revenue of $2.82 billion, EPS of $0.53, and a 1.5% increase in same store sales. Last year the company sold over 400,000 used cars, not including new car sales. If the company posts a great quarter then it could create optimism in an auto industry that has lacked performance over the last three months. Both General Motors (GM) and Ford Motor Company (F) have traded lower by 15% in the last three months, and although it's unknown whether or not strong or weak sales will affect the stock performance of either stock, it could be a good sign of future performance for the industry if earnings are strong.
These two companies may seem somewhat small in terms of importance to the market but could give us an idea of future earnings, and performance, for several other companies. The Fed already lowered is growth guidance for the economy, therefore our expectations are low. And over the last month there have been a number of companies to disappoint on Wall Street, most notably Procter & Gamble (PG) on Wednesday.
Therefore, our economy needs a spark, and after the weakness within the auto industry and Walgreen's disappointing sales, it is very possible that these two companies could provide a spark and create a sense of optimism within both industries, unless sales are bad - then we can expect more of the same.