What happened
Shares of Amazon.com (AMZN 1.34%) were falling hard on Tuesday, down 5.4% as of 12:45 p.m. ET.
There wasn't much company-specific news today; the only announcement from Amazon was a press release announcing that it was expanding Amazon Music's ad-free offerings for Prime members, who will now get 100 million songs and top podcasts ad-free with their Prime membership.
That all sounds great for Prime members, but investors may be more concerned with Amazon's bottom line, and probably macroeconomic factors to a larger extent. It appears large funds may be continuing to lower their positions in Amazon and other large-cap tech names following last week's earnings reports, which disappointed many investors.
Another likely reason for the decline today was a hotter-than-expected job openings number that came out this morning. More open jobs translates to a stronger economy, which means the Federal Reserve may have to continue hiking rates aggressively to bring inflation under control.
So what
As long as inflation and interest rates are the overwhelming focus of investors, it appears as though we will be in a "good news is bad news" market. Since inflation has remained surprisingly high throughout the year, and since the Federal Reserve has embarked on an aggressive path of interest rate hikes, investors actually would like to see things cool down. If the economy cools, inflation should come down, and the Fed won't have to continue its aggressive tightening to the same extent.
Yet this morning, the September Job Openings and Labor Turnover Survey (JOLTS) came out, showing that job openings actually increased to 10.72 million, an increase over the August figure, and well above estimates of 9.85 million. That still signals a very strong economy and many more openings than unemployed people, which is not a great data point for wage inflation.
All things being equal, the JOLTS data likely means the Federal Reserve won't waver from its path of higher interest rates. That could especially harm less-profitable growth stocks like Amazon, with the bulk of their earnings well out into the future. Higher interest rates will discount future earnings by a greater amount, making them worth less in present-dollar terms, all else being equal.
A rapid rise in interest rates would also raise the risk of the Fed making a policy error and going too far, sending the economy into recession next year. That probably wouldn't be good for Amazon either. While some parts of Amazon, such as groceries and consumer staple item sales, will probably make it through a recession just fine, parts of its business, such as advertising and cloud computing, are somewhat sensitive to economic conditions.
Additionally, a strong dollar, brought on by the U.S. Fed hiking at a more aggressive pace than the rest of the world, is wreaking havoc on Amazon's international business. Amazon's international sales saw a stunning 17-point negative growth swing in the third quarter, logging a 5% revenue decline, while it would have been 12-point growth in constant currency.
In last week's earnings report, Amazon Web Services did see a bigger deceleration than analysts had anticipated. On the post-earnings conference call with analysts, CFO Brian Olsavsky did note that cloud customers were looking for ways to limit spend in anticipation of leaner times, by moving some cloud workloads to cheaper tiers of compute and storage.
The AWS slowdown combined with conservative fourth-quarter guidance is likely what sent Amazon stock down following the report, despite some other bright spots. Now, a continued aggressive Federal Reserve may keep consumer and enterprise spending in check. Thus, Amazon investors are seeing a follow-through on last week's disappointment.
Now what
Many investors are hoping for the Federal Reserve to signal a slowdown in the pace of its rate increases, or "pivot," at the Federal Open Market Committee tomorrow. That could explain some of the recent rally in stocks over the past few weeks.
However, today's JOLTS data may dispel that hope, with economically sensitive growth stocks vulnerable to a more hawkish Fed posture. Investors will have to see what Chair Jay Powell says tomorrow, but hotter jobs data combined with last month's disappointing inflation report seem likely to keep the Fed on its current course.
