I'm looking forward to October, but that's only because I've already sold pretty much every marginal retailer from my portfolio. Simply put, I think the first couple weeks of October are going to set the market's mood for months to come.
If sales look good, I think we'll be able to say that the deflating housing bubble hasn't taken too big a toll on the rest of the economy. If the opposite comes true -- and that's what I'm prepared for -- it could be a long, cold fall.
The early tone will be set by Ford (NYSE:F) and GM (NYSE:GM), who report September sales on Oct. 2. With consumer confidence dropping as quickly as American home prices, I doubt that we'll see much evidence of buyers streaming into showrooms to spend $20,000-$30,000 on a new gas guzzler.
But the real litmus test for consumer spending will creep out in the following week's retail sales reports. When companies such as Abercrombie & Fitch (NYSE:ANF), Gap (NYSE:GPS), Hot Topic (NASDAQ:HOTT), Wal-Mart (NYSE:WMT), and Zumiez (NASDAQ:ZUMZ) start reporting on Oct. 10 and 11, I think we'll find out just how resilient American consumers are, or aren't.
I always hesitate to make predictions, but I have a hard time imagining that the deflating wealth-effect from housing won't have held back shoppers. So, expect a lot of disappointments and some short-term fireworks at the very least. After all, many of the retailers out there still trade at rich valuations that presume today's fat profit margins will continue indefinitely. Slumping sales, unfortunately, can yank the leverage out from under investors, making backward-looking price-to-earnings ratios useless. My advice? Always have some dry powder, and pick your targets in advance.
One of the beautiful things about the market is that when panic hits, the traders sell the good along with the bad. That's when Fools rush in. As always, luck favors the prepared.
Was last year's October as spooky? Find out with:
