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Housing, retail, risk: The week ahead

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This week we saw a rush of retail earnings, a read on housing, signs of a risk appetite and a new record close for the S&P 500. What should investors be looking toward in the days ahead?

Housing, housing, housing

There are signs of life in the housing market, one of two areas – together with the labor market – that Federal Reserve Chair Janet Yellen has highlighted as a potential risk to the economy. This week the Commerce Department reported new-home sales rose 6.4% in April and the inventory of houses on the market hit a 3-1/2 year high. Meanwhile, existing home sales also grew 1.3%, according to the National Association of Realtors.

The positive signs in the housing market are evidence the weakness over the winter was due to extreme weather, but there are also warning signs that housing isn’t out of the woods just yet, according to Barry Ritholtz, Chief Investment Officer for Ritholtz Wealth Management.

“This was really a horrific winter, as bad a winter as we’ve seen in decades, and it definitely impacted new-home starts and impacted sales,” he says. “The expectation was: If it really was the weather and not a different set of factors, not an economic downturn, then we should see the data start to pick up around now and it’s coming in a little better than expected, which is lending support to the bad-weather argument.”

But Ritholtz also says there are still problems in the housing market   for instance, mortgage refinancings have plummeted, despite low interest rates. He says that raises a red flag.

Need to know for next week: Case-Shiller and the Federal Housing Finance Agency issue report on home prices Tuesday morning.

Risk is in again

While the housing market remains an area of worry for the economic recovery, investors are looking elsewhere for returns. There appears to be a renewed appetite for risk emerging. Bond buyers this week clamored for a new $1.6 billion offering of riskier Fannie Mae debt.

Fannie Mae and Freddie Mac are also feeding another risky trend: a return to penny stocks. The Wall Street Journal this week reported that average monthly trading volume in over-the-counter stocks, formerly known as “pink sheets”, has jumped 40% this year to a record $23.5 billion.

Yahoo Finance Editor-in-Chief Aaron Task said investors are not seeing returns on bond investments, with treasury yields at multi-year lows, so they’re looking for yield wherever they can find it. “If recent history is any indication, that’s going to lead people to over-reach and get into problems,” Task says.

Need to know for next week: The Conference Board reports on consumer confidence Tuesday.

Extreme retail makeover

There were big moves in retail this week. Yahoo Finance Breakout host Jeff Macke says some of the moves in the retail stocks were surprising considering that investors more or less knew what to expect: more evidence that the consumer is not very strong. “There’s not a ton of demand out there,” says Macke. “The American consumer … is just not buying things at a huge rate.”

However, shares of Sears (SHLD) and Best Buy (BBY) both managed to move higher despite disappointing quarterly results. “It seems to be getting worked into the market that, finally, there’s this recognition that the consumer is not great, but it’s not apocalyptic,” says Macke.

Macke also points out that some of the favorite momentum names which had lost some juice in recent weeks returned to form without attracting much attention – and that’s a bullish sign. Tesla (TSLA), Facebook (F), Amazon (AMZN) and Apple (AAPL) shares all performed well, while Twitter (TWTR) was a disaster, “which is pretty rational at this point.”

Need to know for next week: Costco (COST), Express (EXPR), Abercrombie & Fitch (ANF), ANN (ANN), Big Lots (BIG) report earnings next week.

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