Amazon's Kryptonite: Taxes – Daily Reckoning

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It’s no surprise that I’m a fan of investing in today’s retail sector.

As I talked about on Saturday, it’s like someone forgot to tell the group that the market is in “correction mode!”

Both American Eagle (AEO) and Lululemon Athletica (LULU) are now sitting at 52-week highs after fantastic performances last week. Even department stores Macy’s (M) and Dillard’s (DDS) are holding their gains after trading sharply higher in the first quarter.

But as I want to talk about today, the environment for this sector could soon get even better…

There are currently two tailwinds in motion that could soon propel the retail sector even higher. Both deal with a topic we’ve touched on a lot here at The Daily Edge — taxes.

Retail Tailwind #1: Tax Refunds

Tomorrow is Tax Day which means that over the last few months — and for another month or so to come — Americans will be collecting big refund checks from both the Federal and state governments.

And this year, these refund checks are now coupled with lower tax brackets which have already started showing up in consumer paychecks.

These refund checks are being spent at retailers throughout the country which could be a major catalyst for retail stock prices to jump higher when they report earnings over the next few weeks.

I’ve even seen the trend in my household.

After my son received his tax refund check — which much to my chagrin was a few hundred dollars more than it should have been because he filed as independent — he went straight to American Eagle to pick up a few sweatshirts.

But that’s not all!

The second tailwind that I want to talk about has the potential to have a much larger impact.

Retail Tailwind #2: One Quiet Supreme Court Case

Tomorrow, the Supreme Court is set to hear arguments for overturning a 1992 law that exempts internet merchants from charging sales tax.

This is one story that is definitely not getting the mainstream attention that it deserves.

Currently, the law states that an online merchant can only be forced to charge sales tax if they have a physical presence, such as a warehouse, in the state.

Now for Amazon, who operates warehouses in 35 states, this means that customers in the remaining 15 states could soon see taxes tacked on to their purchases.

But more importantly, there are thousands of other “e-tailers” who don’t operate a wide network of warehouses across the country, and adding sales tax to these purchases could level the playing field a little more between e-commerce and traditional brick-and-mortar businesses.

I’ll keep you posted as the situation in Washington unfolds. But for now, just be aware that the environment is great for traditional brick-and-mortar retailers, and could soon get even better!

Now let’s get to the 5 Must Knows for today…

5 Must Knows For Monday, April 16th

Earnings Hit Stride — After a few of the major banks unofficially kicked off this earnings season last week, the reporting will hit full-stride this week. On Tuesday, Goldman Sachs, Johnson & Johnson, IBM and UnitedHealth Group report. On Wednesday, American Express and Morgan Stanley report. On Thursday, E*Trade, Phillip Morris and a host of small banks report. And on Friday, Honeywell, General Electric and Procter & Gamble all report earnings.

Economists Take D.C. — This week, world leaders will travel to Washington D.C. for the spring meetings of the International Monetary Fund (IMF) and World Bank. The IMF is the world’s lender of last resort, helping to bail out struggling countries and promote financial stability, while the World Bank is focused on lending to poor and middle-income countries. Popular topics are expected to be the tariff riff between the U.S. and China and the escalating tension in the Middle East.

Abe Takes Florida — On Tuesday and Wednesday, Japanese Prime Minister Shinzo Abe will meet with President Trump in Mar-a-Lago. Abe is seen as one of Trump’s closest allies as Trump has spoken to Abe more than any other world leader. However, this meeting is expected to be somewhat tense, as Japan was also hit hard by American import tariffs.

CEOs Take The Stand — Finally some action in the AT&T-Time Warner deal. Five weeks after the Justice Department sued to block the deal, Time Warner CEO Jeff Bewkes and AT&T CEO Randall Stephenson will both testify on behalf of the merger in federal court. This testimony will be a major factor in the outcome of the lawsuit, which was blocked for monopolistic reasons.

Taxing Amazon? — Like we talked about above, on Tuesday, a suit impacting internet retailers will be debated on in the Supreme Court. In particular, justices will hear arguments regarding possibly reconsidering a 1992 ruling that barred states from forcing companies to collect sales tax. This was largely seen as the catalyst for the e-commerce boom which put traditional brick-and-mortar retailers at a huge disadvantage.

Here’s to growing and protecting your wealth!

Zach Scheidt
Editor, The Daily Edge
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