Tech stocks hit Friday by Amazon’s dismal earnings

Stocks look to be heading for an August-September correction despite generally positive earnings news for many companies.

Amazon's Jeff Bezos is smiling. Why? (Circa 2010 image via Wikipedia entry on Bezos)

WASHINGTON, July 28, 2017 – After Thursday’s surprise mid-day hit to market averages, stocks are trading down yet again on Friday, hit by a dismal earnings report coming in from tech and growth icon (symbol: AMZN).

As of approximately 1:30 p.m. ET, all three major averages were off fractionally in shallow, dispirited trading action, after sustaining an initial hit earlier in the day as Big Tech sold off in sympathy with the Amazon earnings report. AMZN is currently off $18.01 (-1.72 percent) per share to stand at $1,027.99 after being off some 4.3 percent earlier.

Oil prices firmed again today as they have been doing all week. ExxonMobil (XOM) took a hit, while Chevron (CVX) balanced that off with a nice gain.

Read also: Trading Diary: Steel and steel-related stocks get blast-furnaced

The selloff in Amazon stock was largely due to its earnings, which came in significantly below analyst estimates. AMZN is subject to these periodic downdrafts given that CEO Jeff Bezos has long been known to pursue market share over consistently quarterly profit numbers. While that has burnished Amazon’s reputation as the ultimate tech growth stock, it does lead to the punishment of its stock when expected quarterly numbers are viewed as considerably out of line with expectations.

In this case, Amazon shares are also backing off new historical highs recently established after the company announced its planned acquisition of Whole Foods (WFM).

This market weakness is perhaps surprising to some, given that U.S. economic growth numbers for Q2 came in at a respectable annualized rate of 2.6 percent – hardly anything to write home about on a historical basis, but better than the average quarterly gains common during the business-hostile Obama administration.

Likely contributing to today’s negative sentiment were sensationalized reports of more leakage in the Trump White House political plumbing; the latest defeat of the so-called “skinny” Obamacare repeal and replace legislation in the Senate, demonstrating the continued uselessness of the Republican party as an antidote to America’s socialist party; and continued disquieting news on the Congressional investigation front regarding a growing scandal for the DNC, House Democrats, and Rep. Debbie Wasserman-Schultz (D-Fla).

Wasserman-Schultz kept on the House payroll several dodgy but security-cleared IT pros of Pakistani origin now suspected of everything from bank fraud and extortion to blackmail plots to possible information gathering for the Muslim Brotherhood. One of the alleged perps was nabbed yesterday at Dulles Airport just outside of Washington, D.C., as he attempted to board a plane and flee the country.

None of this is sitting well either with American businesses or with the Flyover Country electorate in particular.

One final disconcerting item may be the potentially depressive effect of the Federal Reserve’s plan to start reducing the nation’s Federal balance sheet, presumably some time in September.

By the simple act of not re-funding bonds and treasurys it had purchased during its various QE programs – since discontinued – the Fed will effectively be taking money out of the system rather than putting it back in, the reverse of what the nation’s central bank has been doing since around 2009.

The sad thing is that all this free money over the years has inflated the price of stocks, at least for those who own them – mainly the well off and those who managed to fund their 401(k)s and IRAs to the max. No one else, percentage-wise, could get hold of this “free” money via reasonably priced loans, which killed off home buying and the ability to relocate elsewhere in the country for years.

So it looks like the Fed’s balance sheet reduction game – while fiscally quite necessary – won’t be doing homeowners and would-be homeowners much good. Sad.

We’re going to sign off for the weekend now, finish our companion column, and get ready for the weekend. You should, too. It’s been a weird week, so it’s probably time to sit tight, particularly if you’ve been raising cash. Cash is a good place to be in times like these.

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