Why the consumer could tank Wal-Mart

Why the consumer could tank Wal-Mart

The stock market is up, gas prices are down… and yet consumer confidence is shaken. And, according to some traders, that could hurt shares of Wal-Mart.

The Conference Board's Consumer Confidence Index dropped in October to 71.2 from 80.2 in September. And, they're not hopeful about the upcoming months thanks to the battle over the federal budget a few weeks ago. In a statement by Lynn Franco, Director of Economic Indicators at The Conference Board, the business research organization said:

"Consumer confidence deteriorated considerably as the federal government shutdown and debt-ceiling crisis took a particularly large toll on consumers' expectations. Similar declines in confidence were experienced during the payroll tax hike earlier this year, the fiscal cliff discussions in late 2012, and the government shutdown in 1995/1996. However, given the temporary nature of the current resolution, confidence is likely to remain volatile for the next several months."

The reported drop in confidence comes as the US Commerce Department said retail sales excluding autos grew by 0.4% in September compared to August. Thus, while the consumer was spending a little more, they appear to be wary of what's ahead.

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One of those most affected by all this is the world's largest retailer, Wal-Mart. The company announced Tuesday that it was internally promoting 160,000 employees by year's end, just in time for the big holiday season.

But, the effect of the government budget fight on consumer confidence is something the company has to contend with during the anticipated holiday revenue. Bill Simon, CEO of the company's flagship Wal-Mart US stores, said on CNBC's Squawk Box Tuesday morning:

"At least for the time being, things were settled in Washington and operating. Hopefully we have a great holiday selling season. Hopefully Washington will get it solved after the first of the year…. You see this lack of confidence in the economy during the shutdown. We are pleased the government is up and running. We think it will be good for the holiday…. I continue to be amazed with the resilience of the customer and the consumer. Despite the uncertainty in the economy, they can figure out how to adapt and adjust and support their family…. "

(Watch more: We felt government shutdown, says Wal-Mart US boss)

Nonetheless, the fundamentals show a grim outlook for the rest of the year at Wal-Mart, according to John Stephenson, portfolio manager at First Asset Investment Management.

"I think management is worried about Wal-Mart, which is the biggest reason to be bearish on this stock," says Stephenson. "They've described this operating environment as 'tough', as 'unpredictable'. They've guided below consensus for sales for the second half of the year. I don't see any good news in sight."

The technicals are also lackluster for Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson. Ross sees the stock stuck in the same trading range as it has been for the past several months.

"While the chart is not overtly bearish, I think you have to be concerned in this environment," says Ross. "With stocks making record highs around the world… here you have a retail behemoth that hasn't really broken to a fresh new high."

What's ahead for Wal-Mart? To see the rest of the analyses by Stephenson and Ross on Wal-Mart, watch the video above.

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