Back in September, bullish investors viewed the collapse in consumer confidence as a temporary blip in response to the devastation wrought by Hurricane Katrina. But pessimism on the part of American consumers has persisted through October, and the retail sector is now extending a downturn ahead of its make-or-break holiday season.

Concerns about consumer spending were actually spreading before Katrina sent gas prices through the roof. A 12% swoon in the S&P Retail Index stretches back to the start of August. That compares to a slide of about 5% in the S&P 500 over that span. Last week, the retail sector helped pace a sudden deterioration of the Nasdaq Composite, climaxing Thursday with a 1.7% selloff.

Bargain-hunters stepped in Friday and might be on the prowl for opportunities. But Hugh Johnson, chief investment officer with First Albany, cautioned against buying into the weakness.

"Retail stocks are going down for good reasons," Johnson said. "A strong case can be made that consumer spending will slow in the fourth quarter and into next year, and it will not be the driver of the economy that it has been."

Bears have been fretting about rising debt levels in America for years, predicting a slowdown in consumer spending that has so far not come to fruition. Johnson thinks the market is entering a period that will offer them some vindication.

"Energy prices are high, interest rates and debt levels are rising and savings rates are low, so consumers are likely to spend less and save more as we move through 2006," he said. "Also, I think the market is telling us that we are in the later stages of the economic cycle, and at this stage, when the Federal Reserve is raising interest rates, investors historically have migrated away from consumer cyclicals and toward safer sectors like health care and utilities."