What happened
A broad cross-section of stocks tumbled on Friday, as the market focused on macroeconomic conditions and how the Federal Reserve Bank plans to address them.
Software-as-a-service (SaaS) platform Shopify (SHOP 1.11%) was off by as much as 7.4% Friday morning, e-commerce provider Amazon (AMZN 3.43%) stock was down as much as 4.3%, and iPhone maker Apple (AAPL -0.35%) slipped as much as 3.2%. As of 2:47 p.m. ET, the trio were still trading lower, down 6.1%, 4.1%, and 3%, respectively. These stocks followed broader market declines, as the S&P 500 gave up 2.7%, while the Nasdaq Composite declined more than 3.3%.
There was very little in the way of company-specific news behind the sell-off, but fears regarding the overall condition of the economy and the Fed strategy to combat inflation seemed to drive these stocks -- and the market -- lower.
So what
Federal Reserve Bank chair Jerome Powell delivered a speech at the Fed's annual economic symposium in Jackson Hole, Wyoming, on Friday. Market participants were watching carefully for insight into how the central bank plans to continue to battle inflation, which has run rampant in recent months. Unfortunately, the takeaway was not what investors were hoping to hear, with Powell's comments suggesting the Fed would continue an aggressive campaign to bring runaway inflation under control.
Powell suggested that the road to taming inflation wouldn't come quickly or easily, saying, "While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses." He added: "These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain."
While Powell's comments didn't provide specific details, the remarks seemed to suggest another 0.75% rate hike when the Fed meets again in September. It would mark the third successive rate hike in four months. If investors are interpreting his comments correctly, that would bring the key federal funds rate to between 3% and 3.25%, its highest rate since January 2008.
Now what
A period of sustained higher interest rates could further weaken an already struggling economy and could help drive the country into a recession. This prospect sent the major market indexes into a tailspin.
While the spotlight was clearly on the outlook for the economy, there were a couple of interesting rumors that could have further fueled the decline for our trio of technology stocks.
Reports emerged Friday that the U.S. Department of Justice (DOJ) could be considering an antitrust complaint against Apple, according to a report by Politico. The story noted that the DOJ was still in the early stages of the process and no concrete decision had yet been made, citing "a person with direct knowledge of the matter." The report also noted that regulators could ultimately decide not to pursue a case.
Amazon had rumors of its own swirling. Early on Friday, gaming-focused content provider GLHF reported that Amazon had made a bid to acquire video game titan Electronic Arts and would make a public announcement later in the day. After being widely circulated, several subsequent reports refuted that assertion, including one from USA Today, saying the story "violated our editorial standards regarding the use of unnamed and unvetted sources." The publication issued a retraction and pulled the story.
Each of this trio of companies has much to lose in a protracted battle with inflation. Consumers are already having to make difficult choices in the face of high prices at the pump and grocery store. If consumer spending continues to take a hit, it would no doubt weigh on e-commerce purchases, with Shopify and Amazon taking a subsequent hit. Furthermore, people would be far less willing to shell out big bucks for premium devices, including Apple's flagship iPhone, which accounts for more than half the company's revenue.
But history shows that each of these industry leaders has prospered over the long term, surviving economic upheavals, before thriving anew. Furthermore, investors with a long-term outlook will recognize these occasional price slumps as an opportunity to buy world-class stocks on the dip.
