Retailers, despite being under the gun from Amazonaphobia, look set to benefit in a major way from the tax cut package that now looks like a certainty. Apparel retailers have several billion Dollars held offshore, and repatriating that money could lead to some major share buybacks. The stocks likely to gain most from the cuts are Steve Madden, Footlocker, Wolverine Worldwide, and Caleres.
FINSUM: Retail is so bearish right now that few are even bothering to think about this. One way to play the whole sector is the SPRD S&P Retail ETF (XRT(, but that might be very risky in this environment.
Municipal bonds are a huge asset class and increasingly important to the portfolios of retirees. However, the market for them is about to change rapidly. The reason why, of course, is the new Republican tax plan. While their tax exempt status should make them a shelter for investors, the changing tax relationship between the federal and state and local governments mean the financial position of the issuers is about to worsen. A number of changes in the tax code mean that states and municipalities are facing a tax hike from Uncle Sam.
FINSUM: This is going to be a fluid situation, especially as states and municipalities are each going to deal with this individually. However, it needs to become a more intricate part of muni financial analysis by investors.
One of the big issues with the current tax plan is that it partially does away with state and local income tax deductions. In particular, it eliminates the ability to deduct state and local taxes above $10,000. That means personal taxes are set to rise for 13% of New Yorkers and 11% of California and New Jersey residents. However, states are already developing workarounds, such as replacing income tax with payroll tax or classifying state taxes as charitable donations.
FINSUM: Some say that the elimination of the deduction is unconstitutional. That will likely be fought out in court, but until then we imagine states will get very creative about this, especially as some of these states (like those mentioned) already pay in more to the federal government than they get back.
Everyone is talking about the Republican tax reform plan, but within that discussion, one sector is being forgotten as a beneficiary. That sector is restaurants, which stand to gain from the tax reform plan in a major way. The biggest winner will not be giants like McDonalds, or Darden, but rather small to medium size operators. The sector as a whole pays a 28% tax rate, so a 21-22% rate would be a major win for many.
FINSUM: There are some big exceptions to the point that smaller operators will gain. In particular, Starbucks would see up to a 22% combined earnings benefit from the cuts.
Yesterday saw a significant defeat for the Republican party, and a strong showing for Democrats. Democrat Doug Jones scored an improbable victory, snatching a Senate seat from Republican Roy Moore in a state that Trump carried by more than 27%. The win for Democrats in deeply red Alabama, is a worrying sign for Republicans, as it may show a weakening of their base. The victory for Jones was supported by a very high turnout amongst African American voters, Democrats sticking to their party, and a low turnout by rural white voters who form the Republican base.
FINSUM: Beyond just the symbolism, this is a significant defeat because it narrows the Republican senate majority to just 51-49, making it harder for the party to get things through.