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.

The post Why the Amazon share price slumped on Tuesday appeared first on The Motley Fool Australia.

Investors endured another round of selling in the stock market, piling on after last week's turbulent performance. For six months now, major market benchmarks like the Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC) have consistently lost ground. The S&P is inching closer toward joining the Nasdaq in bear market territory with a 17% drop from its highs at the beginning of the year.

Data source: Yahoo! Finance.

One area that has been hit especially hard lately is the e-commerce industry. Companies thrived in 2020 and 2021 as consumers had to resort to internet-based shopping during pandemic-related lockdowns. Now, though, reopening trade has many investors feeling like the heyday of these stocks is over. Moreover, with geopolitical pressures emerging onto the global scene, some believe that the factors that made e-commerce as lucrative as it was could be fading. Below, we'll look at some of the stocks seeing big losses and assess their longer-term prospects.

Big losses in internet retail

Today's session had some big losses, but many of the bottom performers were in the global e-commerce arena. Consider the following:

• Latin America's MercadoLibre (NASDAQ: MELI) fell 17%.
• In Singapore, Sea Limited (NYSE: SE) was down more than 15%.
• E-commerce supporter and buy now/pay later specialist Affirm Holdings (NASDAQ: AFRM) gave up more than 17% of its value.
• Canadian e-commerce platform provider Shopify (NYSE: SHOP) fell 10%.
• Online auto specialist Carvana (NYSE: CVNA) was down around 16.5% on the day.
• South Korea's Coupang (NYSE: CPNG) was one of the biggest losers, falling more than 22%.

As you can see, the selling was relatively indiscriminate and worldwide in scope. Even giants in the industry saw sizable declines, with Amazon.com (NASDAQ: AMZN) falling 5% and China's Alibaba Group (NYSE: BABA) posting a nearly 6% drop.

Most of these declines merely added to much more extensive drops over the past several months. The six stocks in the bullet points above are all down between 60% and 90% from their best levels over the past year, and even Amazon and Alibaba have fallen 40% to 60%.

The long-term picture for e-commerce

E-commerce has made itself an integral part of the overall retail industry, and its long-term prospects remain favorable. Industry watchers see e-commerce continuing to gain market share from brick-and-mortar stores, with one analyst seeing $17.5 trillion in global digital commerce taking place by 2030, up from just over $4.2 trillion in 2020.

But just because there's more e-commerce activity doesn't automatically mean that investing in the space will be equally lucrative. Greater competition could drive margins down, while higher logistics costs could weigh on profitability as well. However, if retailers try to take back some of the features that have made e-commerce popular, such as fast shipping at little or no cost, it could set back prospects for internet retail growth.

The wild card in e-commerce is the extent to which the industry has relied on functional global supply chains. If the free flow of goods comes to a halt, it will have ramifications for the entire retail industry, but e-commerce in particular could see its anticipated higher growth rates come to a standstill.

Lastly, investors need to remember that despite their recent drops, most of these stocks are still sporting solid gains. Amazon has doubled since late 2017, while MercadoLibre and Shopify have tripled and Sea is up nearly 300%. Those huge swings serve as a reminder that the price of extremely high returns from high-growth stocks can be massive volatility, making it essential to find the best stocks earlier rather than later.

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

The post Is global e-commerce really at risk? appeared first on The Motley Fool Australia.

After all, don't share markets head up in more years than they head down? In the medium to long term, doesn't the market drift upwards?

Shorting might be a way to make a quick buck off a declining business – but it's mostly a losing strategy against other companies, said Frazis Capital Partners portfolio manager Michael Frazis.

"We've noted before that when bearish investment professionals heavily short a widely loved company, the love tends to win out," he wrote in a memo to investors Monday.

"This has happened time and again across our portfolio with Tesla Inc (NASDAQ: TSLA), Afterpay Ltd (ASX: APT) and Carvana Co (NYSE: CVNA) et al."

The GameStop short squeeze has ruined the reputation of funds that short, according to Frazis.

"Long/short funds may never be the same. Certainly, institutions should think twice about allocating pension money to long/short funds that did not perform in the crisis of 2020; and can toast billions of dollars in days with a single misjudged trade," he said.

"It's a familiar irony that long/short strategies sound like sensible risk-managed approaches, but so often prove the opposite."

And he should know. Frazis used to short.

Why Frazis gave up shorting

The Motley Fool asked Frazis why he and his fund stopped shorting a couple of years ago.

There was a moral reason.

"Shorting changes your mindset. It brings out your cynicism. You do well when others do not," he told The Motley Fool.

"Every company has a team of people working hard to make it a success. It's infinitely more rewarding to spend your days being positive and supportive of other people."

But above all, according to the Sydney fund manager, it's not a winning strategy.

"It costs a fortune to run a short book. Shorts can cost 2% to 4% to hold a year, and sometimes a lot more," he said.

"We plan to be in business for 30 years, so that adds up to a staggering amount. The real money in life is made by owning successful businesses for extended periods of time."

No winners in GameStop debacle

GameStop, believe it or not, became a now-famous target for activist investors because more than 100% of its shares were shorted.

That means there could've been some "naked" shorting going on, which is a short investor selling a share that they hadn't actually borrowed. 

This is illegal in both the US and on the ASX.

While no one (except for the fund clients) is going to shed any tears for hedge funds that lost money, Frazis warned ultimately no one will win out of this episode.

"It's important to remember that all short squeezes end in the same way: a collapse in price. Once the forced buyer folds at the top, there is no reason for anyone else to buy," he said to investors.

"Having said that, this may not be over. The memes and use of language over the past week has been second to none."

What it has done is to shed light on some new "heroes" in the investment world.

"There are 7 million people on [Reddit group] r/wallstreetbets. If they have US$5k each, that's US$35 billion of dry powder. That's more than enough to push around a heavily shorted stock."

GameStop shares pushed up another 68% on Saturday morning Australian time, to hit US$325. It was US$17.25 a month ago.

The post GameStop chaos: Love always wins over shorting appeared first on The Motley Fool Australia.

PayPal co-founder and early Facebook investor Peter Thiel told Forbes this month that many shares are way overvalued and it would take years for those companies to grow into their valuations.

"But I keep thinking the other side of it is that one should think of COVID and the crisis of this year as this giant watershed moment, where this is the first year of the 21st century," he said.

"This is the year in which the new economy is actually replacing the old economy."

And Sydney portfolio manager Michael Frazis couldn't agree more.

"For all the trials and tragedies of 2020, this was a year when all kinds of technology accelerated," he said in a memo to Frazis Capital clients.

"This was a year where those taking extraordinary risks to advance the human race were richly rewarded, and for that we can all be thankful."

Be on the right side of history

He acknowledged investing in new trends and technological shifts is "often uncomfortable", but investors want to be on the right side of history.

"Balance sheets and income statements are messy, and the extraordinarily talented people that build new businesses are often odd," he said.

"But it's far riskier, in our opinion, to be on the other side of these shifts. Simply look at the performance of Tesla Inc (NASDAQ: TSLA) and Carvana Co (NYSE: CVNA) versus the auto industry; Afterpay Ltd (ASX: APT) and Square Inc (NYSE: SQ) versus global banks; and Shopify Inc (NYSE: SHOP), Mercadolibre Inc (NASDAQ: MELI) and Sea Ltd (NYSE: SE) versus traditional retailers."

Sectors for the new century

Frazis pointed to the extraordinary science behind the development of COVID-19 vaccines as proof that the world has now ticked over to a new era.

"Biology has always had data at its core, but in 2020 this data science reached new heights," he said.

"Chinese scientists posted the genetic code of the coronavirus online, and within days Moderna Inc (NASDAQ: MRNA) developed the first of what will likely be many mRNA vaccines without any access to the virus itself. Truly science fiction stuff."

Biological research received a lot of government and investment funding this year, according to Frazis.

"It has never been cooler to be a biological scientist. Talent and capital is a thrilling combination. The next decade should be a good one for the life sciences."

Non-government space exploration also made tremendous progress in 2020, said Frazis, making private travel out of earth a possibility this century.

"It was also a good year for space, with Virgin Galactic Holdings Inc (NYSE: SPCE) (which we own) and SpaceX (which sadly we can't) both laying down serious milestones in what will be one of the future's largest industries."

He also picked the hydrogen fuel industry as a winner in the coming years.

"In 2020 the use of hydrogen in transportation reached critical levels, much to the benefit of Plug Power Inc (NASDAQ: PLUG), whose fuel cells now transport [about] 30% of US retail food and groceries."

Frazis Capital has returned more than 92% net for the year to date, according to the portfolio manager.

Frazis told his clients last month that he was calling the peak of "red hot tech stocks" and would be selling them down.

"Longer term yields have begun to rise, tech valuations are at record highs, and we believe a period of serious multiple compression has already begun."

The post How the 21st century actually started in 2020 appeared first on The Motley Fool Australia.