Retail stocks rise as border-adjustment tax fears diminish

A Tommy Hilfiger store in New York
Ramin Talaie | Bloomberg | Getty Images
A Tommy Hilfiger store in New York

Retail stocks rose Tuesday, bucking the overall stock market's downward trend, after the threat of a potentially crippling tax policy seemed to diminish.

President-elect Donald Trump said the Republican-backed "border adjustment" tax plan would be "too complicated," according to an interview with The Wall Street Journal published late Monday. The article said retailers and oil refiners have warned that the proposal would force them to raise prices.

"Retail is the poster child for how negatively impacted they would be" from the tax policy, said Art Hogan, chief market strategist at Wunderlich Securities.

Under the GOP's new tax plan, revenues from U.S. companies would be taxed at a rate of 20 percent. Currently, their profits are taxed at a worldwide rate of 35 percent. Firms would also no longer be able to reduce their taxable income by deducting their overseas expenditures.

The SPDR S&P Retail ETF (XRT) climbed more than 1.5 percent, but later pared those gains, ending the day 0.8 percent higher. Michaels gained more than 5 percent, while Guess and Dollar Tree each gained about 3 percent in Tuesday trade.

J.C. Penney traded 2 percent higher after the department store announced that it would add Nike shops in 600 of its locations.

Consumer staples climbed more than 1 percent to lead S&P 500 advancers, helped also by a 3 percent gain in Reynolds American, which climbed to record highs after news of a merger agreement with British American Tobacco.

Oil refinery stocks such as Tesoro also traded higher, while the broader stock market traded slightly lower with financials lagging.