The more than 1.3% declines for the Dow 30 and the S&P 500 and the 2.0% decline of NASDAQ today were caused by last week’s digital sales tax ruling by the US Supreme Court.  The mainstream financial media has blamed today’s decline on trade. Since the ruling the share price of Wal-Mart, Dow 30 member and the king of brick and mortar retail, has increased by 3.5%.  The share price of Amazon, the king of online retail has declined by 5.3% and Fedex’s by 6.2%. Ironically, Wal-Mart is the prime brick and mortar beneficiary of the new digital tax.  Amazon and the thousands of online merchants will no longer be able to compete with it on price alone.  Instead of purchasing online to avoid the sales tax consumers will go to a Wal-Mart which has more SKUs than any other retailer on the planet to purchase the desired products.     My June 21, 2018, article entitled “Effect of SCOTUS Sales Tax Decision on Markets” was about the market not yet fully discounting the impact from the US Supreme Court’s decision to allow municipalities to collect sales taxes on digital sales.     The ruling will have more of a profound effect on the US economy than I had previously thought.  It will be the cause of the US entering a recession much faster than what economists are now predicting.  It’s for three reasons:

  • All of the online merchants are now liable to collect and pay sales taxes to more than 1,400 municipalities in the US.  The merchants will also have to monitor for the frequent changes that the municipalities make. There is not an off-the-shelf software to enable the merchants to manage this process themselves.  The only choice that a merchant will have to become compliant will be to move their online stores to a platform which can manage this for them such as Shopify (symbol:SHOP) which is the largest online merchant hosting company.  This will effectively put all of the independent hosting sites and programmers who work for them out of business.

 

  • The tax will also negatively affect brick and mortar retailers who sell a product in a store in one state and then ship it to the customer’s state of residence.  This will reduce retail sales of especially luxury goods. Once again, since Wal-Mart does not sell luxury goods it will not be affected.

 

  • Since the tax will reduce the demand to ship it will negatively impact the revenue and profits of the shippers.  Federal Express shares have declined by 6.2% versus Wal-Mart shares since the ruling.

The new tax will definitely slow down the digital and the brick and mortar economy.  It further supports the probability that the S&P 500 hit its all-time high for the secular bull which was born in 2009 in January of 2018.   See my February 6, 2018, Equities.com article “BULL DEAD, BEAR DOB 01/31/18: Expect Stock Market Decline of at Least 50%”.   The video below provides details about the secular bulls and bears since the 1800s in the US.   Since the minimum life span of a secular bear is 8 years its viewing is highly recommended.