Earlier today, the U.S. Department of Commerce announced that retail sales in September grew at the slowest pace in the past five months. Total retail sales rose only 0.3 percent, versus the previous month, as U.S. auto sales fell 10.8 percent.
The slowdown in retail sales suggests consumer spending may have reached a high point and will slow over the coming months. Therefore, September's retail sales figures bode poorly for the near-term direction of the economy and U.S. equity prices.
Slowing consumer spending could also bite into corporate profits. My research suggests corporate profits will also continue to slow and that they could actually decline (on a year-over-year basis) during the fourth quarter for the first time since September 2001. Corporate profits are directly linked to consumer spending, which accounts for approximately 72 percent of the U.S.'s total output of goods and services.
I've been warning you in recent articles about the likelihood of a coming decline in consumer spending due to the housing bust. This year, home prices are expected to fall by the largest percentage amount since the Great Depression, which could lead to a decline in household net-worth.
The recent increase in oil prices is another factor behind a consumer spending slowdown. Although crude oil futures for November delivery have pulled back a bit over the past few days, heating oil is expected to rise significantly over the coming months. Meanwhile, gasoline prices could also continue to trend higher due to maintenance shut-downs at U.S. refineries.
Recent consumer confidence statistics also suggest retail sales and consumer spending will continue to slow. The chart below clearly illustrates that consumer expectations regarding the future direction of the economy have trended significantly lower over the past two months. What may be even worse, for those of you that hold long positions in equities, is the fact that stock prices have often fallen precipitously whenever this leading economic indicator has trended lower.
So, once again I urge you to not become complacent about the recent rally in stock prices. And I suggest you stop listening to the Wall Street "experts." Those so-called "experts," by the way, have recently been acting in a way contrary to what they've been telling investors. According to my Relative Performance Model, they've been rotating their holdings to defensive sectors of the market.
If you'd like to prepare for the type of negative investment environment that is currently underway and to profit from a slowdown in consumer spending, Click here now .
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