High End, Low End, and the End of the Market's "Good" Times

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Retail earnings are coming out, and the uneven results should give even the most bullish investors a chill. From Wal-Mart (NYSE: WMT  ) on the low end to Nordstrom (NYSE: JWN  ) on the high, many consumers are keeping their wallets shut.

Wal-Mart reported lackluster quarterly results, and its same-store sales figure lent even more reason for concern. Comps in the U.S., where Wal-Mart does the majority of its business, fell by 0.3%; adding in overseas same-store sales only resulted in a flat figure.

The discount behemoth also lowered its outlook for the remainder of the year, reflecting low-income consumers who are still having a difficult time climbing out of the economy's pockets of extreme weakness. Chief Financial Officer Charles Holley revealed that Wal-Mart's customers' three big financial worries are jobs, the cost of food, and their gas and energy bills.

One takeaway is that the sluggish recovery has created a tier of American consumers who are struggling far more than Wall Street thinks; many Americans with better means may not be noticing, either.

In another sign that says "buyer beware" on many stocks, Wal-Mart's not even the only one that reported disappointing tidings, and that indicates that many consumers are pulling back. Luxury retailer Nordstrom's quarterly results managed to beat analysts' expectations, but it lowered its outlook for the rest of the year.

Furthermore, even some of the less extreme retailers plopped in the middle aren't faring so well. Macy's quarterly results missed analysts' expectations as well.

Here's another ominous takeaway: These retailers are getting cold feet about the rest of the year. Investors who aren't just pondering, say, today's or tomorrow's stock price should get a sense of what that means. Major holidays approach, and it appears that some major retailers aren't envisioning much success in what's traditionally the best shopping frenzy of the year.

Rationality vs. rationalizations
This may very well illustrate that "the new normal" that nobody really talks about anymore is alive and well, the giant elephant in the room.

Even middle-class Americans surely feel some sense of discomfort every time they hit the grocery store or the gas pump. Dollars that don't stretch far in basic places like these result in fewer dollars to spend on other items like apparel.

Some claim jobs may be easier to obtain, but many Americans are still unemployed or underemployed. And we're not even done with layoffs, apparently. Last week, Cisco announced that it's cutting 4,000 jobs (despite the fact that it's still profitable, reported a perfectly good quarter, and has a boatload of cash on its balance sheet).

Uber-bulls have bid up the market to a ridiculous degree over the last several years on conjecture and hope, maybe even delusion about how many Americans are doing these days. Some are just getting by -- or worse.

The market -- full of overpriced stocks of weak companies -- is overdue for a reality check. Caution is in order, especially in the retail space. Deep analysis is more important than ever, too. When everybody's been winning in the market, that's not necessarily brilliance -- it's the often disjointed view of traders who just aren't paying attention and those who are afraid they're missing the boat. Let's be careful out there -- and hope for a real recovery for those Americans who are falling behind.

The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.

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Related Tickers

9/28/2016 4:02 PM
JWN $51.78 Up +0.07 +0.14%
Nordstrom CAPS Rating: ****
WMT $71.79 Down -0.54 -0.75%
Wal-Mart Stores CAPS Rating: ***