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AMZN Premarket: Is The Sky Falling For Amazon Stock?

Amazon stock continues to dig deeper into correction territory. Is the sky falling, and should investors consider dumping their AMZN positions? Read this before making a decision.

It took a while, nearly one year to be precise, but the S&P 500 has finally corrected more than 5% from its all-time high. The tech-rich Nasdaq has done even worse: down 8% from the peak of only four weeks ago, which is already one-third the size of the COVID-19 correction of February and March 2020.

Amazon stock  (AMZN) - Get Amazon.com, Inc. Report has been doing even worse. Shares of the cloud and e-commerce giant are down nearly 15% from the top reached in early July. Is this a sign that investors should run for the exits, or an opportunity to own more AMZN following the recent dip?

Below, the Amazon Maven also reviews what has moved Amazon stock on Monday, October 4.

Figure 1: Amazon fulfilment center.

Figure 1: Amazon fulfilment center.

(Read more from the Amazon Maven: Amazon Stock: Here’s What Investors Should Do In October)

What moved AMZN on Monday

Amazon shares were down 3% on Monday, October 4. Such a dip is sizable, considering that the stock’s daily volatility, measured by one standard deviation away from the average daily return over the past 10 years, has been a relatively tamer 1.9%.

Below are the likely factors that pushed AMZN around during the second trading session of Q4:

  • The markets, not only equities but also bonds and others, have been freefalling in the past couple of weeks. The reasons are not as evident and definitive as, say, the start of the pandemic in Q1 of last year. What is clearer is that all stocks, outside oil and gas and a few defensive sectors, have been taking a beating. AMZN has not been an exception to the rule.
  • Maybe less of a factor, Facebook’s (FB) services like Instagram and WhatsApp were down for a good bit during the day. The stock sank by as much as 6% intraday. While the outage was unrelated to Amazon, it is likely that negative sentiment towards Facebook spread to other tech and cloud names.
  • Not all was bad news on Monday. First, Amazon launched its Black Friday deals on October 4, which should help to boost the company’s e-commerce revenues immediately. Second, a detailed report by research firm Oppenheimer suggests that Amazon should be a relative winner in the face of severe supply chain disruptions. Shares of relative loser ContextLogic  (WISH) - Get ContextLogic Inc. Report, for example, dipped as low as 10% during the trading session.

(Read more from the Amazon Maven: Here Is What Wall Street Says About Amazon Stock)

Is the sky falling?

It is understandable that, given such weakness in the market, investors might feel uneasy owning a volatile name like Amazon. However, we think that taking drastic measures during a pullback will likely hurt returns in the long run, especially in the case of a high-quality company and stock like Amazon.

The Amazon Maven has recently explained what is likely the best strategy for October, and we stand by our views. The near term looks quite uncertain, to be fair. However, buying Amazon on weakness and waiting long enough has consistently proven to be a smart move. This time, we think, will be no different.

If feeling jittery about having AMZN in the portfolio, keep the following piece of data in mind: when this stock was bought after a 15% drawdown in the past 20 years, the median forward one-year return has historically been a whopping 42% (see chart below). Past performance is not a guarantee of future returns, but it can serve as an anchor of hope.

Figure 2: Median one-year return on AMZN.

Figure 2: Median one-year return on AMZN.

Twitter speaks

Ouch! Amazon stock is down nearly 15% from its peak, while the rest of the market continues to pull back. What is the best course of action, regarding AMZN?

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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Amazon Maven)