By Kate Gibson

With banks' stress tests completed and first-quarter earnings season nearly over, stock investors on Monday turned to economic reports, with the release of April's retail sales expected to draw the most attention.

"The trade will examine economic conditions to see if the economy continues to have forward momentum. The bull market needs to be fed more positive economic news," said Nick Kalivas, analyst at MF Global Research.

Consensus estimates for the monthly data slated to be released Wednesday call for overall sales to draw a flat reading, while the figure is expected to rise 0.2% excluding automobile sales.

"In tandem, the release will support the notion that since collapsing in late 2008, the consumer has reestablished at last a tepid pace of consumption," said T.J. Marta, strategist and founder of Marta on the Markets, in emailed comments.

On Monday, energy and financial shares fronted the losses as investors retreated from last week's solid advance.

At 12:05 p.m. Eastern, the Dow Jones Industrial Average (DJI) was down134.13 points, or 1.6%, to stand at 8,440.52. The S&P 500 Index (SPX) shed 15.96 points, or 1.7%, to 913.27, while the Nasdaq Composite (RIXF) fared better, off 7.16 points, or 0.4%, to 1,731.84.

Retail stocks also traded lower, with Home Depot Inc. (HD) and Lowe's Cos. (LOW) among the larger decliners after their stocks were downgraded. .

Raising the bar

The retail sales report holds the potential for a positive surprise in light of raised earnings guidance by more than a dozen U.S. retailers at the end of last week, said Marc Chandler, an analyst at Brown Brothers Harriman & Co.

American shoppers were back in stores last month, with reports suggesting clothing and discretionary spending led the buying, said Chandler. "Retail Metrics, which follows monthly sales figures, said its overall index rose 1.5%."

The U.S. retail sales report for March illustrated a 1.1% overall decline and a 0.9% drop excluding auto sales, with the figures partly mitigated by upward back revisions, leaving headline gains of 0.3% for February and 1.9% in January.

Also of note, the Easter holiday, which last year fell in March, was observed in April this year, a switch that could factor into the year-over-year comparisons, while gasoline prices rose modestly during the month, which might also help inflate the headline number, the analyst said.

"Separately, tax refunds and the payroll tax cut may give more Americans the wherewithal to act on pent-up demand. Unlike last year's tax cut, that was given as a lump-sum payment and which did not lead to a big jump in spending, this year's payroll tax cut will be dripped in relative small sums and may be seen a permanent tax cut and therefore may bolster spending more," said Chandler.

In addition, at least half a dozen retailers are expected to report quarterly financial results during the week, including Macys Inc. (M) on Wednesday and Wal-Mart Stores Inc. (WMT) on Thursday.

Against this backdrop, the SPDR S&P Retail exchange-traded fund (XRT) "shows signs of becoming tired.

"Retail stocks are probably seeing profit taking in front of reports. Retail earnings are expected to contract 30.1% year over year in the first quarter and 27.9% year-over-year in the second quarter before seeing a positive growth rate of 5.3% in the final quarter of 2009," said Kalivas.