Amazon.com, Inc. (AMZN) stock fell 1.98% yesterday, dragging on the tech-heavy NASDAQ. And rightly so: at a market cap of $1.83 trillion, if Amazon sneezes it can affect all stocks. Just the small -2% move erased $36.6 billion of value. What Amazon lost today is larger than the entire market size of 90% of the 6,500 public stocks I follow.
But today's move had little to do with Amazon itself. It was more about fear and seasonal volatility.
- Seasonal volatility is rattling Amazon and tech shares.
- New CDC mask guidelines can be positive for Amazon.
- Amazon earnings should come in strong this week.
First, the Centers for Disease Control and Prevention (CDC) rattled investor nerves by reversing its indoor mask policy. It now recommends that even people vaccinated against COVID-19 should wear masks again indoors in public spaces. The virulent delta variant is worrying investors, the fear being that the far more contagious strain will slow economic recovery and even spur new restrictions.
It is this author's opinion that this likely won't be the case. But just for a moment, let's assume it is. If new social distancing or even lockdowns were to occur, who's better to benefit than Amazon? When news of the pandemic first broke, halting normal life, Amazon stock promptly fell 22% from Feb. 19 to March 12, 2020. But when investors suddenly realized that Amazon would benefit massively from people staying home and shopping online, the stock rocketed 123% to recent highs made on July 8, 2021.
Perhaps a more plausible reason for Amazon's recent fall might be the recent cryptocurrency news. Earlier this week, a rumor went around suggesting that Amazon was considering accepting crypto as a form of payment. This would do wonders to further legitimize the murky world of crypto aspiring to become widely accepted. After all, Amazon merely listed a job opening for a "digital currency and blockchain product lead," and Bitcoin (BTCUSD) surged 14% Monday. But Amazon splashed water on that when the company came out and announced that it does not plan on accepting cryptocurrency as payment anytime soon.
Other negative news today was that China's crackdown is weighing on the tech sector. China's government announced a ban on for-profit education companies. It's also mulling delisting the rideshare company DiDi Global Inc. (DIDI).
The reality is that seasonal summer volatility is here, and Amazon is the third biggest stock out there. Any negative news that can spook markets and cause general selling will affect Amazon stock, and vice versa.
Truth be told, any uncertainty in summer will move stocks around. Summer is a notorious time of lower liquidity and professional traders taking vacations. Summer shenanigans often last from July through August.
But for Amazon, the future looks bright. Earnings will be announced on July 29. And according to FactSet, this earnings season is one for the storybooks: so far for Q2, the S&P 500 is reporting the second highest net profit margin since 2008. And as of Friday, July 23, with 24% of the S&P 500 reporting earnings at the time, 88% reported a positive EPS surprise, and 86% reported a positive revenue surprise.
Even with an unlikely earnings miss, it's hard to imagine a weak report from Amazon. The income statement shows big growth:
And according to FactSet, here are more monster growth metrics:
- One-year sales growth of 38%
- Three-year sales growth of 30%
- One-year earnings growth of 82%
- Three-year earnings growth of 108%
- Gross profit margin of 40%
I expect the trend to continue given how vibrant Amazon's multiple business lines are right now, as I discussed last week.
Now, for a guide of future stock performance, I look at fundamentals. But I also focus on how the stock trades. If Big Money investors gobble up stocks, it can be a strong indication of good things to come for its future price.
My proprietary system looks for when Big Money is likely buying a stock. We can see below that Amazon's 32 appearances as a top stock in my ranking make it a clear outlier ... better than almost all other stocks.
In the chart below, we see when my system saw big buying in Amazon shares. You can see that those days also saw outsized volumes.
Additionally, you can see that the latest lift in share price aligns with increasing accumulation.
The Bottom Line
Summer volatility and jittery headlines caused Amazon stock to fizzle yesterday. But the stock has been a Big Money magnet for years and likely will be so for years to come. I've learned not to get distracted by the short-term noise. Focus on the long-term trend, which is: Big Money loves this stock.
Disclosure: The author holds no position in AMZN at the time of publication.