Trump Tax Discord Boosts U.S. Retail Stocks as Financials Slump

Updated on
  • Retailers rally as border tax called ‘too complicated’
  • S&P 500 Financials Index declines to lowest since December

Another day, another stock market divided by comments from President-elect Donald Trump.

Retailers helped push the Standard & Poor’s 500 Consumer Staples Index to its biggest gain this year as Trump signaled hesitation on a border adjustment tax previously seen as detrimental to the group and said that the dollar was already “too strong.” Financial shares, which have seen their benchmark-best performance since the election threatened by speculation that tax breaks won’t arrive as expected, were on the opposite end of the rankings Tuesday, posting their biggest drop in seven months.

In an interview with the Wall Street Journal, Trump called border adjustment, which would tax imports and exempt exports, “too complicated.” While that’s helped retailers in the immediate term, it’s called into question whether he will follow through with tax cuts that analysts from Morgan Stanley to Sanford C. Bernstein & Co. see as crucial for the strength of financial shares in 2017.

Other considerations for bank analysts heading into 2017 include the Federal Reserve’s planned pace of interest rate hikes and how much trading revenue firms will be able to generate.

“Anytime I hear border adjustment, I don’t love it,” Trump said in the interview, boosting shares of apparel, footwear and mass merchants, which rely heavily on importing goods from outside the U.S.

Wal-Mart Stores Inc. rose as much as 1.9 percent, helping lift consumer staples, the best performing group in the S&P 500 on Tuesday with a 1.4 percent gain. Consumer discretionary shares rose 0.2 percent, with Ralph Lauren Corp., Gap Inc. and Michael Kors each rallying at least 2 percent.

Financials fell 2.3 percent to the lowest level since Dec. 5. Brian Kleinhanzl, an analyst at Keefe, Bruyette & Woods said in an interview that Trump’s statements, as well as commentary on Brexit, are likely hitting bank stocks. At the same time, a “lower quality” earnings beat for JPMorgan Chase & Co. took the shine off Friday’s gains in the sector.