What happened

A broad cross section of stocks rallied so far this week, recovering from last month's drubbing and buoyed by a manufacturing report and jobs data that suggest the worst might be over. Then again, it might not.

With that as a backdrop, a number of digital-retail stocks far outpaced gains by the broader market indexes this week. Shares of Shopify (SHOP 0.19%) rose as much as 15.4%, Etsy (ETSY 2.44%) jumped as high as 16.6%, and Coupang (CPNG 3.97%) surged as much as 27.8%, according to data provided by S&P Global Market Intelligence.

When the market closed on Thursday, the trio were still trading higher for the week, gaining 11.6%, 15%, and 26.2%, respectively. These stocks followed the broader market bounce, as the S&P 500 and the Nasdaq Composite gained 2.9% and 3.1%, respectively, so far this week.

There was no company-specific news pushing these stocks higher, but shares of each of these companies have cratered since late last year, so any positive news is reason enough for investors to go bargain hunting. The latest report on manufacturing, combined with the most recent jobs data, acted as a catalyst, causing investors to wade back in and buy up shares of these beaten-down e-commerce stocks.

So what

The first report came courtesy of the Institute for Supply Management, which showed that manufacturing activity declined in September. The Manufacturing Purchasing Managers Index (PMI) registered 50.9%, down from 52.8% in August. Any figure above 50% suggests expansion in manufacturing, though activity continues to moderate. The reading was below economists' consensus estimates of 52.3%. More importantly, however, the prices index -- a measure of prices paid -- declined for the sixth consecutive month. This suggests that inflation might be easing, since manufacturers are paying less for component parts.

The second report came from the Bureau of Labor Statistics, which reported that total job openings of roughly 10 million in August slumped more than 10%, a drop of more than 1 million compared to July. That marked the biggest one-month decline since early 2020, suggesting that the labor market was weakening. This is a number that is closely watched by the Federal Reserve Bank for signs that rising interest rates are slowing inflation and closing the gap between job seekers and available positions. A softening labor market might convince the Fed to slow or even pause its relentless pace of rate hikes.

Now what

It's worth noting that there was no company-specific news for Shopify, Etsy, or Coupang this week, so they appeared to be following the broader market higher.

So what do a manufacturing and a labor report have to do with e-commerce stocks? It isn't so much the reports themselves, but the fact that manufacturing continues to ease and the job market continues to tighten, suggesting to Wall Street that inflation could be easing -- which would be welcome news to investors and consumers alike.

The Federal Reserve Bank has been very clear that it will continue to aggressively battle rampant inflation with all the tools at its disposal, most notably its ongoing campaign of rate hikes. The most recent increase came late last month, when the Fed pushed interest rates up by 75 basis points, marking the third successive increase since June and the fifth rate hike of 2022. That bumped the federal funds rate to a range of between 3% and 3.25%, its highest in 14 years. 

Each of our threesome of e-commerce stock has suffered from the impact of high inflation. Consumers have been forced to make difficult choices, both at the gas pump and in the grocery aisle. This has resulted in a rapid decline in online purchasing, which slows revenue growth and cuts into profits -- or even results in losses for these digital merchants.

The prospect that inflation could finally be slowing might convince the Fed to pause its push for higher interest rates. This in turn would be good news for the broader economy, which helped send the market (and our trio of stocks) higher.

It's important to remember that the bear market has depressed stock prices over the past year, giving investors a rare chance to buy industry-leading e-commerce stocks at a discount. That doesn't mean these stocks won't fall further; they likely will. However, each one is currently trading at or near multiyear-low valuations.

Shopify, Etsy, and Coupang stocks are currently selling for 6 times, 5 times, and 2 times next year's sales, respectively, when a reasonable price-to-sales ratio is between 1 and 2. For investors with a three- to five-year time horizon and the available funds to invest now, buying shares in these best-of-breed companies while their stocks are near historic low valuations would be a wise move indeed.