Why Amazon Is Plunging Today

what happened

shares of Amazon.co.jp (AMZN -5.89%) fell sharply on Tuesday, down 5.4% as of 12:45 pm ET.

There wasn’t much company-specific news today. The only announcement from Amazon was his release to the press announcing that they were expanding Amazon Music’s ad-free service for Prime members. Prime members will have access to 100 million songs and top her podcasts ad-free.

This sounds great for Prime members, but investors may be more concerned with Amazon’s earnings, and perhaps macroeconomic factors. In response, big funds appear to be continuing to downgrade Amazon and other big tech companies.

Another possible reason for today’s drop is that the number of job openings announced this morning was higher than expected. More job openings lead to a stronger economy. That means the Federal Reserve may have to continue aggressive rate hikes to keep inflation down.

So what

As long as inflation and interest rates remain the overwhelming focus of investors, we seem to be in a market where the good news is bad news. With inflation remaining surprisingly high throughout the year and the Federal Reserve embarking on an aggressive rate hike track, investors really want to see things calm down. If the economy cools, inflation should fall and the Fed doesn’t need to continue tightening with the same degree of aggressiveness.

But this morning, the September Jobs and Turnover Survey (JOLTS) was released and the number of job openings actually increased to 10.72 million, higher than the August figure and well above the estimate of 9.85 million. was shown. It still shows a very strong economy and more job openings than unemployed, not a great data point for wage inflation.

All things being equal, the JOLTS data could indicate that the Fed is on the road to higher rates. This could especially hurt unprofitable growth stocks like Amazon, where most of the earnings are long-term. Higher interest rates significantly discount future earnings, reducing their value in today’s dollar terms. All other conditions are the same.

A sharp rise in interest rates also increases the risk that the Fed will make too many policy mistakes and plunge the economy into recession next year. That’s probably not good for Amazon either. While some Amazon divisions, such as selling groceries and consumer essentials, are likely to weather the recession well, some businesses, such as advertising and cloud computing, are less sensitive to economic conditions. is.

Additionally, a strong dollar brought on by the US Federal Reserve (Fed) raising interest rates at a more aggressive pace than elsewhere in the world has hit Amazon’s international business hard. Amazon’s international sales contracted a staggering 17 points in the third quarter, posting a 5% revenue decline, while growing 12 points at constant currency.

In last week’s earnings report, Amazon Web Services showed a bigger slowdown than analysts had expected. On a post-earnings conference call with analysts, CFO Brian Olsavsky said some of the cloud’s workloads could be moved to cheaper tiers of compute and storage to help cloud customers save time. pointed out that they are looking for ways to limit spending in anticipation of

A slowdown in AWS, combined with conservative fourth-quarter guidance, may have sent Amazon’s stock down following the report, despite a few other bright spots. Now, the continued aggressive Federal Reserve may hold back consumer and business spending. Thus, Amazon investors are seeing a follow-through from last week’s disappointment.

so

Many investors hope the Federal Reserve will signal a slowdown, or “pivot,” in the pace of rate hikes at tomorrow’s Federal Open Market Committee meeting. This may explain some of the recent share price rally over the past few weeks.

But today’s JOLTS data may dash that hope. Investors will have to see what Chairman Jay Powell will say tomorrow, but hotter jobs data coupled with last month’s disappointing inflation report make the Fed likely to stick with its current course. is.