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The market this week: Why you should be watching retail, the trade everyone's in love with — and more

Investors in the week ahead face some serious questions about how stable the economy is heading into the summer months. Stocks are still going strong, but indications that things could cool down would be at the very least a significant stumbling block.

A look at a few things to keep in mind for the next five days:

People walk along the sidewalk in the rain on Christmas Eve on December 24, 2014 in New York City.
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A retail recession? Not so fast

Consumers say they're feeling good about their prospects, but it had not translated into retail sales. Until now.

Friday brought with it news that spending actually picked up in April and wasn't as bad some previous readings had indicated. That's important.

Why? Because consumer behavior is the missing link that connects strong sentiment surveys with fairly weak data points through the year so far.

How good can it get? Pretty good

The retail rebound had reverberations around Wall Street. Economists upped their projections for the second quarter, and it now looks like GDP could gain somewhere in the 3.5 percent range after a lousy 0.7-percent rise in the first quarter.

Curiously, traders bailed out of retail stocks Friday, with the sector stumbling 1.8 percent, thanks largely to a plunge by JCPenney. So investors need to be leery of individual stocks that will suffer under various pressures. But as a whole, it looks like the worries about store receipts were overdone.

For the week ahead: Keep an eye on some of other reports that come out. This week features readings on manufacturing (Monday and Thursday) and housing (Tuesday). Good indicators across the board would confirm better times ahead.

And by better times, we mean that the stock market, despite multiple predictions of that ever-present correction right around the corner, can keep climbing.

French presidential election candidate Emmanuel Macron, head of the political movement En Marche !, or Onwards ! greets supporters as leaves a polling station during the the second round of 2017 French presidential election, in Le Touquet, France, May 7, 2017.
Philippe Wojazer | Reuters
French presidential election candidate Emmanuel Macron, head of the political movement En Marche !, or Onwards ! greets supporters as leaves a polling station during the the second round of 2017 French presidential election, in Le Touquet, France, May 7, 2017.

What everyone's buying

Despite all the good signs for U.S. stocks, here's a nugget to keep in mind: Everyone is in love with Europe.

Since Emmanuel Macron prevailed in the French presidential election, the trade has intensified. Over the past week investors pumped a record $6.1 billion into funds that focus on Europe, according to Bank of America Merrill Lynch.

Of course, you always want to be wary of crowded trades. But this one is worth watching.

What could go wrong

Hedge fund magnate Ray Dalio worries that there are too many danger signs out there to be confident.

Specifically, he cites peaking growth, high debt levels, impotent central bank policies, and social and political conflicts that could worsen.

The conflicts, though, have been going on all year. No matter how bad things get in Washington, nobody seems to care — at least in the investing community.

Speaking of conflicts and Washington, President Donald Trump is taking a road trip this week. Among the scheduled stops are Saudi Arabia, Israel and the Vatican where he'll be speaking with Pope Francis.

The president's first real foreign tour since taking office poses any number of impactful events for investors. Definitely worth watching.