Its been a month since the United States Supreme Court ruled to allow US States and municipalities to collect sales taxes from products and services that are purchased from online sellers.  Over the last 20 trading days the shares of Wal-Mart increased by 4.5%. From June 21st to July 18th the shares of the world’s biggest retailer out performed the S&P 500 which increased by 1.2%. 

Its only logical that Wal-Mart’s shares would outperform.  it’s the biggest beneficiary of the court’s decision since the consumer no longer gets a price break when purchasing goods online instead of at their local Wal-Mart store.  Fedex is the biggest loser and its share price decline of 8.1% reflects this. Due to the decision there obviously will be a reduction in the growth rate of online retail sales.  This will result in less items being shipped.

Ebay is also another logical loser with its share price being down by 4.8% versus Wal-Mart.  Many of its independent marketers will be burdened. They will subject to escalating costs due to having to collect sales taxes and distribute them to more than 1400 municipalities.

Finally, the new digital tax is a negative for the stock market.   It reduces the growth rate of the digital economy and the overall PE multiple for tech stocks.  The tax puts a damper on the technology sector which has been leading the market.

• 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.  

The US Supreme Court (SCOTUS) ruled today that the State of South Dakota can apply their brick and mortar sales taxes to those businesses domiciled outside of the state who sell their products and services online to South Dakota’s residents.  This is a significant negative development for the digital economy and for the NASDAQ which has a heavier weighting of online companies. After hitting its all time high along with the Dow and the S&P 500 earlier in the year the NASDAQ early this week hit an all-time new high.  The SCOTUS announcement will send the index back down to earth. The index has likely seen its high for the foreseeable future.

The SCOTUS event has not yet been digested by financial media because the $1.2 trillion digital represents only 6.5% of the US’s overall economy.  It will become more heavily discounted by investors since the NASDAQ and especially the FANG (Facebook, Amazon, Netflix and Google) stocks have been leading the market and keeping the S&P 500 propped up.   Below are the reasons why the new tax will negatively impact the digital economy.

• Millions of online merchants will have to upgrade their technology and software to collect sales taxes levied by states and even municipalities.  For example, New York State and New York City each levy 4% sales taxes.
• The prices that the consumers will pay in 45 of the 50 US states to purchase products and services online will increase by an average of 5%. This will slow the growth rate of the digital economy which very recently had been growing at three times the rate of the over-all economy.

The SCOTUS sales tax decision further increases the probability that the S&P 500 hit its all-time high earlier this year for the secular bull which was born in 2009.  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.

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