AMZN Stock: Inflation May Impact E-Commerce King Amazon
- On paper, Amazon (AMZN) seems like a no-brainer due to the dynamics of the “new normal”.
- However, inflation continues to be a problem for AMZN stocks and other investments.
- It is better for potential buyers to wait for the next sessions.
During the first two years of the coronavirus pandemic, Amazon (NASDAQ:AMZN) was a clear winner, but questions about his ability to maintain his dominant profile arose. In particular, AMZN stock appears to be struggling to maintain key technical levels. And when that happens for a blue chip company like Amazon, fundamental headwinds can be at play.
Of course, if you just look at the circumstances from a bird’s eye view, the situation for AMZN stock looks more optimistic than anything else. For example, the underlying e-commerce platform has clearly benefited from the new normal – the name associated with post-Covid-19 realities. With people fearful of being infected with the mysterious SARS-CoV-2 virus, online transactions have received a huge boost.
Indeed, at the height of societal fears, e-commerce as a percentage of total retail sales rose 15.7% in the second quarter of 2020. Although AMZN stock was not the sole beneficiary of this shift in consumer behavior, it was among the most profitable thanks to the incredible awareness and the Amazon imprint. Even though this allocation to e-commerce has since declined, the metric is considerably higher by pre-pandemic standards.
Still, that might not be enough to save Amazon’s stock, at least for the interim. As powerful as the company is, it seems no match for the Federal Reserve.
Inflation and the Uphill Battle for AMZN Stocks
You don’t need to be an economist to recognize that something is seriously wrong: a quick trip to the gas station will tell you immediately. On a personal note, I almost spent a Benjamin to fill my tank – a first in a country mile.
Although there is much blame in the media, what is sometimes overlooked on the partisan battlefield is the dramatic expansion of real money supply M2. Month over month in April 2020, the money supply increased by 7.2%, the largest magnitude on record. For context, the previous high was in December 2008 at just over 3%.
However, based on where AMZN stock is now compared to where it was during the slump of 2020, it appears that Amazon has somehow avoided the negative implications of this monetary stock expansion. But this momentum could stem from excessive exuberance on Wall Street.
To be on the safe side, you can point to data such as anticipated retail sales within the larger framework retail businesswhich increased by 18% between 2020 and 2021. Specifically, you can cite sectors such as the retail furniture sub-segment, which has grown significantly from 2020 and pre-pandemic standards.
But it is also possible that certain sectors, such as housing, benefit from ad hoc catalysts. For example, the jewelry sector decreased between 2019 and 2020. Moreover, if we consider the fashion clothes and accessories segment, you will notice that the combination of 2020 and 2021 sales is significantly lower than the combination of 2018 and 2019 sales.
In other words, inflation could slowly weigh on discretionary consumer spending. This in turn may bode ill for AMZN stocks.
Technical rumbles serve as a warning to Amazon investors
In my view, the only practical solution to getting consumer prices back to the “old normal” is for the Fed to fix the money supply problem. We can see in hindsight that the injection of liquidity into the financial system only caused the free market to react accordingly.
Yes, it is easy to point to politicians, parties and private equity firms as culprits. However, without the expansion of the money supply, it is difficult to imagine the strong increases in certain sectors, such as real estate. Due to the crippling nature of soaring inflation, institutional firms have had no choice but to protect their wealth through investments. We see the result in ridiculous housing costs.
But it also poses downwind problems for investments like AMZN stocks. The increase in the money supply has not only affected housing, but almost all vital products and services. We therefore see in the underperformance of discretionary categories such as jewelry and fashion that consumers are tightening their belts. This is not conducive to Amazon’s progress.
On the charts, AMZN stock is struggling around the $3,300 level. Based on an upward trendline that started in July 2020, stocks should arguably be trading around the $3,500 level – and that’s the baseline. To build confidence, AMZN should really attack the $3,800 level.
Wait a few
Given the lack of momentum in AMZN stocks, I think the best idea for potential buyers is to wait a few sessions. Let safety provide a clearer picture of its potential forward trajectory before making a significant move.
That’s not to say Amazon is a bad investment. On the contrary, it is a very powerful entity. However, its recent technical downturn forces us all to consider the fundamental context. Unfortunately, a closer look reveals that all is not well with AMZN, forcing a cautious approach in the meantime.
As of the date of publication, Josh Enomoto had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.