Judging by Wal-Mart's (NYSE:WMT) surge today, investors are just wild about the discount retailer after its third-quarter report. Of course, one might question whether there's reason to curb their optimism just a tad. Not only does Wal-Mart's stock price increase look a little overly optimistic, but so does the "halo effect" it has had on many other retailers.

Wal-Mart's net income increased 7.9% to $2.86 billion, or $0.70 per share. Sales increased 8.8% to $90.9 billion. Same-store sales increased 1.5%, including fuel sales. Its long-term debt is up 25%, and cash and equivalents are down 16%. Granted, Wal-Mart's quarter was better than Wall Street expected, which often leads to euphoric interludes. On the other hand, Wal-Mart's successful quarter included an iron grip on containing costs and inventory.

It fits well with my Foolish colleague Seth Jayson's October article, "Retail in Fantasyland." He pointed out how easy it is to misconstrue Wal-Mart's recent numbers as signals of consumer strength when, in fact, given Wal-Mart's reputation for rock-bottom prices, maybe they're a better sign that consumers are actually feeling pinched right now.

Meanwhile, a gaggle of retailers' stocks are up by ridiculous percentages today. Long-beleaguered retailer Hot Topic (NASDAQ:HOTT) (what could be more different than Wal-Mart?) is up 6% as of this writing. Talbots (NYSE:TLB), also long in turnaround mode, is up nearly 10%. Aeropostale (NYSE:ARO) is a stronger retailer with shares in bargain territory recently, but its price is up 9%. All these increases appear merely to be reactions to the perception that Wal-Mart had a blowout quarter, with no news of their own.

Personally, I'm still hesitant on Wal-Mart for several reasons. First of all, it has its public image and strategy to work on as the retail landscape evolves. It faces very smart discount retail competition from the likes of Target (NYSE:TGT) and Costco (NASDAQ:COST), and its major competitive advantage has been slashing prices -- good for volume but rough on margins. Controlling costs is great, but sustainable sales growth is a necessary part of the equation, too, and at the moment there are many moving parts to consider, such as a changing consumer landscape, not to mention the possibility of a recession.

Then there's the big picture: When it comes to the retail landscape, investors who aren't looking long and hard for the best, most well-run retailers that have sustainable competitive advantages and are trading at reasonable prices may end up holding some empty shopping bags. 

More Wal-Mart Foolishness:

  • Last month I wondered if Wal-Mart was better than Target.
  • Then Target released superior comps results.

Alyce Lomax does not own shares of any of the companies mentioned. Wal-Mart is a Motley Fool Inside Value recommendation. Costco is a Motley Fool Stock Advisor pick. The Fool has a disclosure policy.