At the end of August, I wrote about the diverging fortunes of the “Two Americas” and used the relative performance of high-end jeweler Tiffany & Co (NYSE:TIF) and the everyman store Wal-Mart (NYSE:WMT).

Click to EnlargeWhile Tiffany had been enjoying massive sales and profits gains — and this despite rising costs for the company’s gold and diamond inputs — Wal-Mart had posted nine consecutive quarters of declining domestic sales. Wal-Mart’s core demographic — middle- and working-class Americans — were suffering, while the global wealthy were doing just fine.

I was not bearish on Wal-Mart (after all, if any retailer can survive a rough economy, it would be the colossus from Bentonville, Ark.), but I recommended investors carve out room in their portfolios for an allocation to the luxury goods sector. In addition to Tiffany, I offered Coach (NYSE:COH) and LVMH Moet Hennessy Louis Vuitton (PINK:LVMUY) as suggestions.

Alas, investors would have been better off just buying Wal-Mart. As you can see in the chart, WMT has been the best-performing stock of the group.

My, what a difference three months can make. Wal-Mart finally broke its chain of declining quarters when it announced earnings earlier this month, and Tiffany issued a disappointing outlook on Tuesday that sent its shares down more than 11% intraday. The entire luxury sector fell in sympathy on fears that the euro zone crisis would sap demand for expensive baubles and trinkets.

So are investors right to be concerned? Has Europe killed the bull market in bling?

If Tiffany’s earnings release is any indication, the answer is an emphatic “no.”

Sales were up 21% and earnings per share climbed a whopping 63% for the quarter ended Oct. 31. Sales in the Americas were up 17%, and — importantly — sales in Asia were up 44% on strong demand from China. Even in Europe, the epicenter of the crisis, same-store sales were up a respectable 6% after adjusting for currency moves.

Tiffany CEO Patrick McGuiness said in the conference call that fourth-quarter sales were “meeting expectations” but that he was “certainly not implying that Tiffany will be completely insulated” from the economic shockwaves emanating from Europe. Analysts had expected fourth-quarter earnings of $1.63 per share, but McGuiness indicated earnings likely would be five cents lower at $1.58.

It’s hard to look at these numbers and see justification for an 11% correction, but such is life in marketland. Markets are forward looking, and when too much optimism is baked into the stock price, disappointments like these happen. On the flip side, when too much pessimism is baked into prices, even trivially good news can send a stock’s price soaring. Consider Research In Motion’s (NASDAQ:RIMM) announcement Tuesday that it would open its corporate networks to iPhones and Android phones; shares shot up by more than 8% before backing off slightly.