Why the Amazon share price slumped on Tuesday

The evidence of a weakening economy continues to grow.

| More on:
sad child holds paper and leans with head in hand near a computer looking downcast.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

A broad cross section of stocks stumbled on Tuesday, as market watchers focused on deteriorating macroeconomic conditions and the potential that things could get worse before they get better.

E-commerce platform Amazon (NASDAQ: AMZN) stock was down as much as 2.3% on Tuesday morning, mobile games platform Skillz (NYSE: SKLZ) slipped as much as 5.1% and online used car retailer Carvana (NYSE: CVNA) was off by as much as 6.7%. As of 2:34 p.m. ET, the trio were still trading lower, down 1.5%, 2.9%, and 3%, respectively. These stocks followed the broader market lower, as the S&P 500 gave up 1.2%, while the Nasdaq Composite declined more than 1.4%.

There was very little in the way of company-specific news behind the sell-off, but fears regarding the faltering economy intensified as investors weighed the possibility that they could be facing higher inflation and the potential for a prolonged recession.

So what

A report released Tuesday by the Bureau of Labor Statistics added to the growing mountain of evidence that the economy could be worse off than originally expected. The Job Openings and Labor Turnover Summary for July found that there were almost 1 million more job openings than market watchers expected. The total number of available positions rose to 11.24 million, far exceeding the 10.3 million predicted.

Economists have been keeping a close eye on the growing shortage of candidates to fill the available positions, a situation that seems to be getting worse instead of better. There are now nearly two jobs openings for each available candidate. As a result, prospective employers are forced to offer higher wages in order to entice potential employees, which in turn increases inflationary pressures.

In another sign of the tightening job market, the number of job openings increased in July compared to June, with an additional 200,000 positions going unfilled.

The news come on the heels of remarks by Federal Reserve Bank chair Jerome Powell late last week that suggested the Fed would continue its aggressive campaign to combat inflation. "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," Powell said. "These are the unfortunate costs of reducing inflation."

The Fed has been working to reduce the number of unfilled positions without sparking higher unemployment. Unfortunately, the red-hot job market increases the likelihood that the central bank will be forced into another 0.75% rate increase when policymakers meet again in September, which would mark the third successive rate hike of this magnitude in four months.

Now what

So what does this all have to do with this trio of companies? The continuing prospect of an economic slowdown will weigh on a great many consumer discretionary stocks.

The potential for even higher interest rates will likely result in "pain" for consumers, according to Powell. Indeed, the average household is already making difficult decisions caused by higher costs for food and fuel. If the faltering economy further reduces consumer spending, it's conceivable that consumers will cut back on e-commerce purchases, forgo the purchase of a new car, or refuse to lay out hard-earned cash for competitive games of chance.

That said, for investors who are already sold on the prospects of Amazon, Carvana, and Skillz, the economic headwinds will eventually abate. That gives investors the opportunity to use temporary price slumps like these as an opportunity to get shares at a discount.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Danny Vena has positions in Amazon and Carvana Co. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon and Skillz Inc. The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

A woman is excited as she reads the latest rumour on her phone.
Broker Notes

Goldman Sachs says this US stock is replacing Tesla in the Magnificent Seven

And no, it's not a tech company. It's in the healthcare sector.

Read more »

A man looking at his laptop and thinking.
Share Gainers

Should I buy Nvidia stock as an Australian investor?

Many Aussies are thinking of jumping on the bandwagon, but they need to think about these issues first.

Read more »

Digital rocket on a laptop.
Broker Notes

Is the Nvidia share price on course to reach US$1,400?

You betcha, says one analyst.

Read more »

A woman holds a soldering tool as she sits in front of a computer screen while working on the manufacturing of technology equipment in a laboratory environment.
International Stock News

Could Nvidia become the most valuable stock on earth?

Can anything stop the Nvidia stock price?

Read more »

A group of young ASX investors sitting around a laptop with an older lady standing behind them explaining how investing works.
International Stock News

What can ASX investors learn from Warren Buffett's latest buys and sells?

We've just found out what Buffett's been buying and selling recently.

Read more »

electric vehicle such as Tesla being charged at charging station
International Stock News

Why Tesla stock tanked in January

Will the electric vehicle leader see earnings decline once again in 2024?

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
International Stock News

Will Nvidia stock be worth more than Microsoft by 2030?

The graphics giant has been growing at a much faster pace than Microsoft, but can it sustain that momentum?

Read more »

Man with hands in the middle of two items with money bags on them.
International Stock News

Stock-split watch: Is Tesla next?

Stock splits are fun. But how much substance there is in Tesla splitting its stock is debatable.

Read more »