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Strong Start to Holiday Season May Boost Market's Mood

A good start to the holiday shopping season may provide a slight boost to sentiment in the week ahead, as investors await what's likely to be an improved, but still weak jobs report Friday.

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"Volume is likely to remain thin — People are interested in getting back in, but although the money is there, confidence is not ... that's one of the problems we're having in terms of getting a sustainable rally," said Doreen Mogavero, president and CEO of Mogavero, Lee & Co.

Europe may continue to unsettle markets, as European leaders look to build consensus around the idea of more integrated fiscal governance, ahead of yet another EU summit Dec. 9. Investors will also focus on the drama around Greece's next aid payment, needed to avoid default in the next several weeks.

The November jobs report is expected to show payrolls increased by about 118,000, up from 80,000 in October, and an unchanged unemployment rate of 9 percent. Like other U.S. data, it should paint a picture of an economy that is improving slightly in the fourth quarter. There are also auto sales and the ISM manufacturing index, expected to show improvement and continued economic expansion.

Stocks in the past week were repeatedly stung by disappointment from the euro zone, making it the worst Thanksgiving weeksince the Great Depression. The markets also flashed a new message midweek as European sovereign yields continued to rise. Germany's 6 billion euro debt auction stumbled, failing to bring enough buyers for its 10-year note and sending rates higher, a signal the strongest European economy is not immune to the stresses of the debt crisis. The German 10-year bund yield Friday was 31 basis points above the 10-year Treasury, the biggest premium since April 2009.

The 10-year Treasury was yielding 1.955 percent, after a week that saw it on both sides of 2 percent. The Dow finished the week down 4.8 percent at 11,231, its third worst week of the year and its worst Thanksgiving week since 1932. The S&P 500 fell 4.7 percent to 1158, the worst weekly performance in 10 weeks. The Dow is now down nearly 3 percent year-to-date and the S&P is down nearly 8 percent for the year.

The euro, in the past week, lost more than 2 percent and slid below 1.33. "If Greece doesn't get funded, they'll default before year end. There's a December 9 meeting and I think there'll be a lot of excitement and anticipation, but Greece has 20 days of cash left," said Robert Sinche, head of global currency strategy at RBS, in an interview this past week. "We can have all these political meetings, important dates... but where the rubber meets the road is whether Greece makes its payments."

President Obama holds a summit with European Union leaders in Washington Monday on a wide range of topics, including, of course, the debt crisis. Expected to attend are European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso.

Jolly Holiday

November's chain-store sales, scheduled to be released Thursday, will likely show that the U.S. consumer continues to be willing to spend, despite the wobbling stock market, poor jobs picture and broader economic malaise. Thomson Reuters expects the retailers it follows to report an average sales increase of 3.2 percent, with discount stores, expected to be the best performers, gaining 4.4 percent. Next best should be apparel, up 2.7 percent, but teen apparel is expected to see a decline of 0.9 percent.

The November reports should also give a clue about the holiday season, since they include Black Friday, the day after Thanksgiving and the traditional start of the holiday shopping season.

"I think it's one of the more intense Black Fridays," said retail analyst Dana Telsey of Telsey Advisory Group. Telsey expects the weekend sales to be strong and sees total holiday sales to be up 3.5 to 4 percent this year, better than many analysts are forecasting.

Some retailers got a jump on Black Friday by opening Thanksgiving night and offering online bargains all day Thursday. Telsey said retailers have good control over their inventories this year, but the theme of the season is going to be promotion. "We see the price incentives on the goods people want," such as electronics and tablets, she said. Most holiday sales are made between Dec. 15 and 25, she said.

Retailers can make as much as 40 percent of their annual sales during the holiday season.

There's No Place Like Home

As markets struggle with headwinds from Europe, and investors struggle with markets, some analysts see the U.S. as the best place to put money.

"The U.S. market is the best house on a bad block. The dollar has been telling you this for awhile," said Richard Bernstein, ceo of Richard Bernstein Advisors. "The reason people are so bearish is they think about problems as only our problems. What we're now finding out is that these other places do have issues. Ultimately fundamentals rule the day. Fundamentals in the U.S. are improving. I don't think it's fantastic but it's adequate," he said. Bernstein pointed to issues in emerging markets, like Brazil which reported GDP growth of just 0.3 percent and China, which reported a contraction in manufacturing, both in the past week.

"I think it depends on a couple of things. One is what happens to underlying fundamentals. Do earnings stay reasonably strong? Does the economy continue to improve? And number two, can Washington actually show some leadership? " he said. In the past week, the Congressional super committee failed to agree on any of $1.2 trillion in required deficit reductions, triggering a process where automatic cuts will now take place in 2013.

Citigroup analysts, in a note Friday, also pointed out the attractiveness of U.S. assets, but from the perspective of Europeans.

"European investors are the most interested in American stocks since 2000," wrote Citigroup chief U.S. equity strategist Tobias Levkovich. "A visit to Europe over the past two weeks found fund mangers there more intrigued by U.S. equities than seen since the tech bubble." He said one reason was outperformance but investors are also concerned about the euro and whether countries will leave the single currency.

Levkovich also said the weak market itself could become a catalyst for a rebound. "A study looking back 50 years shows that there is a meaningfully better-than-random probability of a market rebound over the next six months when share prices drop four, five or six percent over relatively compressed trading periods," he noted. He also said the current level may be an attractive entry point "barring exogenous shocks."

Bernstein also pointed to the negative sentiment toward the market as a signal for a potential turning point.

"You have very weak retail participation," said Bernstein. "You have institutions that are basically on hold. This is the sentiment you need to start a bull market cycle. I don't know whether this goes on for a month or two months, I don't know. We're looking for opportunities to buy."

What to Watch (all times EST)

Monday

1000 am New home sales (Oct)

Tuesday

Earnings: Tiffany

0900 am S&P/Case-Shiller HPI (Sept. Q3)

1000 am Consumer confidence (Nov)

1000 am FHFA HPI (Sept Q3)

Wednesday

Earnings: American Eagle, SeaDrill, Fresh Market, Aeropostale, Express, Synopsys

0815 am ADP employment (Nov)

0830 am Productivity and costs (Q3)

0945 am Chicago PMI (Nov)

1000 am Pending home sales (Sept)

0200 pm Beige book

Thursday

Earnings: Barnes and Noble, Kroger, Lululemon Athletica, Toronto Dominion, Canadian Imperial, H&R Block

Monthly vehicle sales reported by auto makers and chain store sales

0830 am Weekly jobless claims

1000 am ISM manufacturing (Nov)

1000 am Construction spending (Oct)

Friday

Earnings: Bank of Nova Scotia, Big Lots, Royal Bank of Canada

0830 am Employment report (Nov)

Follow Patti Domm on Twitter: @pattidomm

Disclaimer

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.