The stock market is a lot like a football game: In the end, it all comes down to the fourth quarter.
Whether we're talking retailers slugging it out during the pivotal holidays or fund managers trying to outmuscle the market averages, the winners will be separated from the losers over the next three months.
I'll go out on a limb with a few predictions, some more outlandish Hail Mary heaves than others.
1. Merger mania will continue
If you think the third quarter closed with a flurry of prolific acquisitions, keep those seat belts buckled.
Deals will likely intensify this quarter, with several factors at play.
For starters, the rally that began in mid-March has been wearing thin lately. Smaller companies with a sense of mortality may be hoping to cash out at the top, and investors can't blame them, given the zesty gains that many companies have tacked on in recent months.
Acquirers will want to use their own inflated shares as legal tender, but the targets will prefer cash for the same reason that they are smoking out exit strategies.
That sets up the perfect environment for greater buyout activity, given that the tech world's biggest names have tens of billions in the bank. Cisco (NASDAQ:CSCO), for instance, has $35 billion in cash and short-term investments on its balance sheet. Since organic growth will be unimpressive for many of them in the early stages of an economic recovery, going on an M&A hunt makes perfect sense.
2. Sirius XM Radio will shed net subscribers
After years of growth, satellite radio took a step back through the first half of 2009. Sirius XM Radio (NASDAQ:SIRI) shipped signals to more than 18.4 million subscribers at the end of June, but that was 590,421 fewer fans than it started the year with.
The recession and moribund auto market have been the scapegoats, leading some to believe that Sirius XM is bouncing back now that the economy has bottomed out and the "cash for clunkers" summertime promotion has breathed new life into dormant auto assembly lines.
I don't necessarily see it that way. I already predicted that Sirius XM will shed 80,000 net subscribers when it reports its third-quarter results next month. It won't get any better over the holidays.
Conversion rates have been slipping. Churn has been inching higher. July's introduction of a music royalty fee of nearly $2 a month is going to nudge out even more fence-straddling subscribers.
Fans will point to the streaming application for Apple's (NASDAQ:AAPL) App Store and the iPhone-tethered SkyDock as new revenue streams, but they would be mistaking a foe for a friend. Smartphone sales with unlimited data plans and access to free Internet radio keep climbing. It is more a threat to premium radio than an opportunity, and you will see that in the third-quarter subscriber counts.
3. Cheaper console prices won't save the video game industry
All three console makers slashed their system prices sharply during the third quarter, much to the delight of struggling software developers. As Xbox 360, PS3, and Wii boxes get cheaper, holiday shoppers will be more likely to buy them and load up on games.
That's the bullish theory, anyway.
Reality will play out a little bit differently. The companies that have hit franchises -- like Activision Blizzard (NASDAQ:ATVI) and its planned November release of Call of Duty: Modern Warfare 2 -- will do merely OK. The smaller developers with more obscure titles will be completely out of the picture.
Gamers have too many cheaper diversions to occupy their time. Between free multiplayer games such as FarmVille and Mafia Wars on Facebook and the free and nearly free games available for Apple's iPhone and iPod touch, gamers will be buying fewer physical games this holiday season.
Conventional toymakers such as Mattel (NYSE:MAT) have a better shot at mattering this season than the video game industry. It's an unlikely role reversal, but it's going to happen.
4. Amazon.com will gain market share again
As big as Amazon.com (NASDAQ:AMZN) has become, the leading online retailer continues to grow faster than its peers. Competitive prices, dot-com dependability, and the virally perfect Prime membership program keep Amazon shoppers close in the otherwise competitive e-tailing space.
Offline retailers have pitched their tents in cyberspace. After a few false starts, Wal-Mart (NYSE:WMT) is proving that the world's largest offline retailer belongs as an online store. Unfortunately, no one is coming even close to Amazon, so this will be another holiday season where Amazon widens the gap between itself and everybody else.
Your turn
Am I crazy? Will merger activity cool off? Is Sirius XM gaining net subs again? Will the video game industry take off after the recent $50 to $100 console price reductions? Is Amazon cruising for a bruising?
I'm shaking my head on all of those questions, but you've got your own jogging noggin. If you agree or disagree with me, let me know if the comment box below.
