what happened
After posting explosive profits in Thursday’s daily trading session, Amazon (AMZN 4.30%) The stock posted another big gain in today’s trading. Shares of the e-commerce and cloud computing giant ended Friday’s session up about 4.3%. on the other hand, S&P 500 The index level ended up 0.9% higher. NASDAQ Composite The index ended the session up 1.9%.
The U.S. Department of Labor released new consumer price index (CPI) data on Thursday, with lower-than-expected inflation in October helping to spur a dramatic uptick in bullish momentum across markets. The CPI rose 0.4% on a sequential basis, up 7.7% year-on-year, while economists had expected a 0.6% consecutive increase and a 7.9% increase compared to October 2021. Better-than-expected data has prompted investors to invest in Amazon and other growth stocks.
So what
Amazon shares surged 12.6% in Thursday trading after the release of new CPI data, and the momentum continued in Friday trading. Investors are hoping the moderate inflation data could indicate that the worst pressures on this macroeconomic front have passed and stocks are headed for a more sustained recovery.
The Federal Reserve (Fed) is raising interest rates in hopes of taming rampant inflation, and an unfavorable macroeconomic backdrop has crushed stock valuations this year. In addition to the trend of impacting the broader market and depressing the stock price, Amazon’s results are also being weighed down by inflationary trends.
The majority of Amazon’s revenue still comes from its e-commerce business, and the company is under pressure as inflation drives up costs and undermines profitability in an already low-margin segment. Once inflation subsides, earnings could improve significantly. With the Fed holding off on big rate hikes, it could create a more favorable backdrop for growth stocks and the market as a whole, so it’s no surprise that investors are raving about his recent CPI news.
So
Even after the recent rally, Amazon’s stock is still down about 40% across 2022 trading, down 46% from last year’s high. For long-term investors, we think the stock is worth buying at its current price, but there is also the risk that the market’s recent rally will prove to be relatively short-lived, giving way to more volatility.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Keith Noonan has no positions in any of the mentioned stocks. The Motley Fool invests in and recommends Amazon. The Motley Fool’s U.S. headquarters has a disclosure policy.
