Investor Warning: Trump’s Return May Spell Trouble for Amazon Stock
With many expecting Trump to win the election in November, his economic policies could significantly impact stock prices. For one, Trump’s proposed corporate tax rate cut from 21% to 15% would immediately increase Amazon’s (NASDAQ:AMZN) earnings. There are, however, a few negatives including tariffs, immigration policies and the already weakened consumer demand that bode poorly for Amazon stock.
Amazon Stock and Slowing Discretionary Spending
Consumer spending in the US has been cooling due to persistent inflation, high interest rates and the end of the pandemic savings. The Consumer Discretionary Select Sector SPDR ETF (XLY) is down 0.2% year-to-date, making it one of the worst-performing sectors in the S&P 500.
Earnings from McDonald’s (NYSE:MCD) and Starbucks (NASDAQ:SBUX) have shown that consumers are purchasing less while retailers like Target (NYSE:TGT) have had to offer discounts to entice customers back. Furthermore, the resumption of student debt payments is also expected to ease consumer spending.
As of July 2024, analysts are still anticipating a 55.8% chance for the U.S economy to go into a recession over the next 12 months.
Though the stock market has rallied on the optimism from generative AI, this won’t help Amazon when almost 40% of its revenue is from its marketplace and an additional 24% is dependent on providing services to third-party sellers.
Trump’s Tariffs Could Hurt Amazon Stock
Trump has proposed a 60% tariff on all goods imported from China. In 2019, approximately 20% of Amazon’s private-label costs and 25% of third-party sellers’ costs were attributed to Chinese imports.
The 10% universal tariff would hurt China even if it plans to circumvent Mexico as it has done in the past.
Studies have shown that consumers are usually the ones who bear the brunt of tariffs. Implementation of these policies could end up stretching Americans’ savings even further. A weaker consumer is bad news for companies like Amazon.
Still, this impact could be overblown since there are checks on the executive branch and Trump’s policies will need to successfully pass in the House and Senate. With how negative tariffs are to the economy, even Republicans have historically tried to scale back Trump’s policies.
Trump’s Border Policies Could Also Hurt Amazon
In 2020, Amazon reported that about 63% of its warehouse workers were Black, Latino, Native American or multiracial.
Although it is difficult to say how many of those who work in Amazon’s warehouses could be illegal immigrants, stricter border policies certainly prevent more immigrants who eventually become legalized and working in the US.
Its warehouses are perfect for immigrants since it does not require fluency in the English language and some have claimed that immigrants in Amazon warehouses are common.
Less labor supply means increased wages which can have an impact on Amazon’s margins. Although by the time this plays out Amazon’s warehouses could increasingly be using robotics.
Interest Rates Could Be Lowered
Many agree that tariffs could potentially raise inflation again, which would mean holding interest rates constant or even being raised again.
If interest rates are held constant, consumers will likely have less cash to spend on sites like Amazon. Meanwhile, Amazon’s valuation would decline if interest rates rose or didn’t ease as fast as the market expected.
High interest rates lower the valuation of stocks since investors could get higher returns from risk-free assets like treasuries.
My Verdict
A Trump election victory certainly wouldn’t be ideal for Amazon stock. However, the affects could be less pronounced because of checks on the president’s power.
The decrease in consumer spending is always a risk to Amazon stock and increased tariffs could further hit Americans in their wallets. All things considered, I still own Amazon shares and will not be selling right now.
I will certainly be watching the results of the election and the implementation of Trump’s trade policies which could change my long-term investment thesis for Amazon’s stock.
On the date of publication, Michael Que held a LONG position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.
