This Week in the Markets: Watch Retail and Energy Stocks

An excess of oil supply and a dearth of shopping-inclined consumers: those appear to be the major concerns of the markets, as we head into this coming week.

A huge and growing global oil glut seems to justify the beating that the energy sector has taken lately, but worries about the strength of the impending holiday shopping season appear overwrought. That said, consumer spending is the linchpin of the overall economy. If consumer spending slumps, it would dampen not just the retail sector but the broader markets.Weak and vulnerable stocks would get hit the hardest.

Let's start with retail. Investors will place inordinate weight on the earnings reports of big name retail companies scheduled for release this week.

Among the retailers reporting operating results in the coming days:

Nov. 16: Urban Outfitters; Nov. 17: Home Depot, TJX (operator of T.J. Maxx and Marshalls stores), and Wal-Mart; Nov. 19: Best Buy, Sears Holdings, and Ross Stores; Nov. 20: Abercrombie and Fitch, and Foot Locker.

The SPDR S&P Retail ETF (XRT) is down 11.74% year to date; it plummeted 3.81% last Friday alone. In fact, the broader market dropped to its second-largest loss of the year on Friday, driven lower by fears about the holiday retail season. The S&P 500 is now down nearly 2% for the year.

The main catalysts for the declines in retail were disappointing earnings results from Nordstrom and Macy's.

The holiday shopping season, which accounts for nearly three quarters of annual consumer spending, officially kicks off on November 27, a day of crazed (if not downright feral) behavior known as "Black Friday." Exacerbating worries about retail earnings was a government report indicating U.S. retail spending rose only 0.1% in October, a tad less than analysts had hoped.

Whether the recent loss of faith in the retail sector is justified or an overreaction will become clearer in coming days. Lost amid the pessimism: continuing economic recovery in the U.S., reduced household debt, rising home prices, an increasingly robust employment picture, and low energy prices.

Which brings us to the huge stockpiles of oil around the world that continue to weigh on energy stocks. Expanded production in Saudi Arabia, several Gulf States, and Russia, combined with prolific production in North American shale fields, has produced such a surfeit of oil that producers are having trouble storing it all.

Slowing growth in China, the world's growth engine, only adds to the brimming oversupply. Oil prices now hover at the psychologically significant $40-a-barrel barrier: the U.S. benchmark West Texas Intermediate closed Friday at $40.75 and the international benchmark Brent North Sea Crude at $43.62. Hard to believe that oil prices were above $100 as recently as the summer of 2014.

The Energy Select Sector SPDR ETF (XLE) has dropped 16.65% year to date. Accordingly, major energy stocks have posted dismal YTD performances: Chevron (-20.95%); Exxon Mobil (-15.52); ConocoPhillips (-24.95); and BP(-12.43).

Rattled energy investors will be seeking comfort from two status reports scheduled for release this week from the U.S. Energy Information Administration (EIA), one on petroleum (due on Wednesday, November 18) and another on natural gas (Nov. 19).

Other key data reports due this week:

Nov. 17: Consumer Prices, Industrial Production, and Housing

Nov. 19: Jobless Claims and Leading Indicators

With less than two weeks to go before Black Friday, the events of the coming week in retail and energy will likely set expectations for the broader markets for the rest of the year.

By John Persinos

Source:http://www.thestreet.com/story/13366018/1/this-week-in-the-markets-watch-retail-and-energy-stocks.html?kval=dontmiss