The retail stock swoon picked up on Friday after getting started late in the session on Thursday, when the White House appeared to offer the clearest sign yet that President Trump may embrace the House GOP border-tax plan that could sock retailers' earnings.
Shares of Target (TGT) fell 0.7% to 63.70 on the stock market today, retreating intraday to their lowest since November 2014. Wal-Mart (WMT) slid 1.6% to 65.66, hitting an eight-month low. Other retailers that have bucked the sector's recent woes also got caught in the downdraft. Costco (COST) slipped 1.2%, while Best Buy (BBY) sank 3.9%, falling below its 50-day line.
Department stores were among the hardest hit. JCPenney (JCP) tumbled 4.7% to a 1-year low while Macy's (M) lost 2.7% for its worst close since late 2011.
Shares of Amazon (AMZN) were relatively unscathed, easing 0.3% to 836.30, just below a buy point. The online shopping giant is seen as less exposed to a border tax, partly because of its fast-growing web services business and partly because import taxes would be borne by Amazon sellers responsible for shipping goods to the company's fulfillment centers.
According to the initial news reports on Thursday afternoon, White House press secretary Sean Spicer seemed to offer confirmation that Trump would adopt the House proposal for a 20% tax on imports. Spicer said that the wall Trump wants to build on the border with Mexico could be paid for with a 20% tax on imports from Mexico as part of the broad corporate tax reform package being developed.
While the White House later clarified that the border tax was only one option being considered, that apparently did little to assuage investors' concerns. Despite unexpectedly slow annualized fourth-quarter GDP growth of 1.9% reported on Friday, major stock indexes were essentially flat in afternoon trading, suggesting that politics were behind the retail walloping.
IBD'S TAKE: Big exporters like Boeing could have a negative tax rate under the GOP tax reform plan.
Wal-Mart and Target officials pleaded their case in Capitol Hill meetings this week. The National Retail Federation is lobbying aggressively to block the tax, which it says could lead to an outright decline in consumer spending.
Economists generally suggest that such fears are way overblown because appreciation of the dollar vs. other currencies should offset the 20% tax. Nevertheless, retailers that were hoping for a big boost to after-tax profits from tax reform are now giving off a sense of panic about how they may fare under the GOP plan.
House Republicans have said they see the border-adjusted tax, which applies to imports but not exports, as a critical part of tax reform because it would raise more than $1 trillion to help pay for a reduction in the corporate rate to 20%.
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