What happened
After posting explosive gains in Thursday’s daily trading session, Amazon (AMZN 4.30%) The stock saw another big jump in today’s trading. The e-commerce and cloud computing giant’s share price closed up around 4.3% on Friday. Meanwhile the S&P500 Index level ended the day up 0.9% and the Nasdaq Composite Index ended the session up 1.9%.
The US Department of Labor released new consumer price index (CPI) data on Thursday and lower-than-expected inflation in October helped fuel a dramatic increase in bullish momentum for the market as a whole. The CPI rose 0.4% sequentially and 7.7% year-on-year, while economists were expecting a 0.6% sequential increase and a 7.9% increase compared to October 2021. The better-than-expected data has investors flocking back to Amazon and other growth stocks.
so what
Amazon shares rose 12.6% in Thursday trading following the release of new CPI data, and positive momentum for the stock continued in Friday trading. Investors are hoping that the easing inflation data could signal that the worst of the pressure on this macroeconomic front is over and that stocks are on track for a more sustained recovery.
The Federal Reserve has hiked interest rates in hopes of curbing raging inflation, and the unfavorable macroeconomic backdrop has weighed on equity valuations this year. In addition to trends impacting the broader market and driving the stock price lower, Amazon’s business performance has also been impacted by inflationary trends.
With the majority of the company’s revenue still coming from its e-commerce business, Amazon has been under pressure as inflation has pushed up costs and hurt profitability in an already low-margin segment. Business performance could improve significantly when inflation cools. The Fed’s move away from big rate hikes could create a much more benign environment for growth stocks and the market at large, so it’s not surprising that investors are excited following recent CPI news.
What now
Even after the recent rebound, Amazon stock is still trading about 40% this year in 2022, and down 46% from last year’s peak. For long-term investors, I think the stock remains a worthwhile buy at current prices, but there is also a risk that the market’s recent rally may prove relatively short-lived and give way to higher 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 position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
