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Stocks Suffer Despite Consumer Income Rise
Posted On Wednesday, November 23, 2011 at at 3:19 PM by Finance Fanatic
It is the week of all weeks for retailers. In fact, I find it comical to browse around online retailers to see that the norm has now become "Black Friday Week." Retailers are riding the black friday train as long as they can. Some, like Amazon, keep the party going a whole week after. For many, 40-50% of their profits will be earned in the next two months. That can be a big gamble if consumers are tightening spending a bit, which recent data is showing.
First, lets discuss the drops in stocks. This was initiated by the failure of Congress to pass a bill to cut into the Federal Deficit, which has caused for a lot of concern on Wall Street with some speculating another future downgrade in US debt. The one received earlier caused quite the shake in markets.
Coupled with politics, is the recent spending data which was released this week that showed despite consumer earning more income this past month, their spending rate decreased. Sure, October can be an exhaust month in anticipation of the holidays, but many see it as consumers being concerned about economic uncertainty.
In addition, jobless claims ticked up by 2,000 this week, which didn't help.
A lot of eyes will be on Black Friday spending to see how consumer sentiment is going into the holidays. Don't be fooled by coupons being sent in the mail. Many retailers are cutting back on holiday savings, due to recent declines in sales despite large discounts on items (big ticket items especially).
As for now, I have a straddled position in the market, hedging many of my longs with shorts. To offset the rest, I am bullish on commodities and gold as I continue to believe uncertainty amongst investors will push up those markets. Happy Trading.
