Consumer confidence for September fell back below 100 to 99.8 following a revised 105.6 reading in August. The September reading was well below the estimate of 104.5. The worry is that the weakening consumer confidence will translate into weak retail sales. We will see if this pans out as we head into the prime- shopping season after Thanksgiving.
The reality is that there may be sluggishness in the important fourth quarter shopping season. Given the high oil prices at around $80.00 a barrel along with declining prices in the housing market and issues in the mortgage and credit markets, there is concern. The positive was the 50-basis-point cut in the benchmark Fed Funds rate by the Federal Reserve last week, which should help to improve consumer spending.
In addition, debt levels are continuing to expand and will become more of a concern going forward as consumers watch their disposable income fall. A good majority of people have fixed budgets and higher financing costs will reduce money available for other purchases.
Watch for the retailers in the upcoming fourth quarter. The high fuel costs could impact consumer spending. Bellwether Wal-Mart Stores, Inc. (NYSE/WMT), a good indicator of the retail sector, had blamed high fuel costs for soft sales.
If you are currently holding retail stocks, here is what you may want to consider. Given the neutral sentiment towards retail stocks, you could write some covered call options to generate some premium, thus reducing the overall average cost of the stock in question.
If you are negative on the retail sector and want to short, I would suggest you reconsider unless you have a stomach for risk. If you need to short, please place appropriate stop-buys on the short position or you could find yourself vulnerable should the stock stage a strong rally. A better alternative to shorting would be to buy Put options or initiate Bearish Put Spreads.