With the worlds' equity markets becoming more stable, investors seem to be split on the near-term future of the U.S. economy. Some say the worst is behind us, others are calling the current stability a dead-cat bounce.

While arguments can be made for either side, one theme everyone seems to agree on is an abysmal holiday season is around the corner, as far as retailers are concerned.

Pinching the Purse Strings
Even if the "bottom is in", economic recovery is usually 6 months or more behind a stock market recovery. The typical American has the bulk, if not all of their assets, in the stock market and/or their home, 2 markets that have been crushed all year.

The end result is consumer confidence at a historic low. Shoppers are more reluctant than ever to make big purchases as they have seen their assets deteriorate and sources of credit dry up.

Just one year-ago, consumers had no problem buying a home with no money down, piling on credit card debt, getting home-equity loans to finance major purchases, however this season those are a thing of the past. Those are also reasons that retailers are bracing for the worst holiday season in recent memory.

Christmas in October
I have always been from the camp that cringed when Christmas decorations hit the shelves before the Thanksgiving turkey was carved. To my dismay, this year I saw the first advertisement containing Santa across from the aisle of Halloween candy. While I am no Scrooge, this is a terrible sign of things to come.
Retailers foresee weak spending and are casting their advertising nets earlier than ever in an attempt to capture a greater share of a temporarily shrinking market.

Steer Clear of These Retailers
Below are retail stocks that you may be better off taking a rain-check on.
Talbots Inc. (TLB).- offers high-quality clothing for a well-defined niche, catering to well-educated women. Estimates for the current year have been cut nearly 70% to 13 cents from 41 cents in the past 3 months. Next year's consensus is 28% lower over the same time, now 50 cents per share, down from 69 cents.

Some investors are looking toward discount retailers, but they are no guarantee, and in fact many are now over priced.
Tuesday Morning Corp. (TUES) is a closeout retail for upscale home furnishings. The company just announced quarterly results on Oct 28 including a 14% year-over-year decrease in sales. Tuesday Morning posted a 10 cents per share loss for the quarter, compared to a 3 cents profit last year.
Analyst estimates have been in a free fall for the past 30 days. The full-year consensus estimates for the current and next year are both down nearly 80%.

99 Cents Only Stores (NDN) seems like a great safe haven for anyone looking to capitalize on shoppers who have become more frugal after a tough year and uncertain future. However, after shares have doubled since mid-summer, the stock is far from a deal. Shares are currently trading at nearly 45 times next years earnings. That seems a bit pricey for a company that has posted a loss in 3 of the past 4 quarters, including 2 negative earnings surprises.

What about its growth prospects? The 8% expected earnings growth is hardly worth the price tag as the PEG ratio is nearly 8.5.