What happened In Amazon Stock?
On Monday, Amazon (NASDAQ: AMZN) saw a significant boost in its stock, with a 3.1% increase as of 12:38 p.m. EDT. This gain was even higher than the Nasdaq, which was up by 2% at the same time. A Wall Street analyst reinforced his positive outlook for Amazon by reiterating his buy rating, despite also reducing his price target. Furthermore, multiple macroeconomic indicators, such as a strong dollar and eased inflation, contributed to this upward trend in Amazon’s shares which were impacted by these factors throughout the last year.
Amazon, as a large-cap company, is often affected by macroeconomic factors. However, while these factors had a negative impact on Amazon’s shares last year, they had a positive impact today. On Monday, the Federal Reserve released the results of its December inflation survey, which showed that expectations for inflation over the next year dropped by 20 basis points to 5%, the lowest reading since July 2021.
When this is combined with the moderating wage growth seen in last Friday’s labor report, it suggests that the pressures of core inflation may be decreasing. This is positive news for growth stock investors, as high and persistent inflation can negatively impact companies with a majority of their earnings in the future.
Additionally, on Monday, the 10-year Treasury Bond yield also decreased slightly and the value of the dollar against other currencies also fell. The 10-year yield is often used as a benchmark for investors when forming their discount rates on stocks, so when it goes down, the value of future cash flows increases and vice versa.
Furthermore, a strong dollar had a negative effect on Amazon’s international revenues in the third quarter. A weaker dollar is positive news for Amazon’s international segment.
Despite the 50% decline in Amazon’s stock price last year, one analyst remained optimistic about the company. Jefferies analyst Brent Thill released a note on Monday reiterating his buy rating on Amazon shares, but also lowered his price target from $135 to $125. This lower price target may reflect concerns about economic weakness and lackluster demand. However, Thill also noted that the cost pressures experienced by Amazon last year are decreasing. This is consistent with the decrease in fuel prices and the weaker dollar in the summer, and the cost-cutting efforts by Amazon CEO Andy Jassy which includes 18,000 layoffs.
Out of the group of large-cap technology companies known as FAANG, I believe Amazon has the potential to make the greatest recovery. Amazon has underperformed for not just one year, but for two years and is still 56% below its all-time high, even after today’s increase.
Despite this, with multiple cost pressures easing, as well as its strong competitive advantages and improved performance prospects for its e-commerce, digital advertising, and cloud computing divisions, Amazon is well-positioned to make a significant recovery in 2023 as the various challenges of 2022 begin to subside.
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