Why Is the Stock Market Selling Off? Here Are 2 Reasons. - Barron's

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Parcels flow along a conveyor belt at an Amazon packaging center.

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The stock market is falling because Amazon.com ‘s latest earnings left tech investors jittery, and because—separately—some fund managers could be selling certain stocks to reposition their portfolios. 

Losses in the main indexes moderated by mid morning, but the S&P 500 earlier fell by as much as 0.7% and the Nasdaq Composite lost as much as 1.2%. The Dow Jones Industrial Average fell 0.3%.

“Amazon is the culprit,” writes NatAlliance Securities’ Andrew Brenner.

Amazon’s (ticker: AMZN) e-commerce growth was flat-out disappointing. While the company did post a profit of $15.12 a share, beating estimates for $12.30, sales came in at $113 billion, below expectations for $115.2 billion. Year-over-year growth in online store sales was 16%, below Wall Street’s expectations and lower than last year’s growth of 49%.

Last year’s growth, of course, got a big lift as people stuck a home during lockdowns shopped online rather than going to stores. Morgan Stanley analysts lowered their forecast for 2022 earnings before interest, taxes, depreciation, and amortization by 5%, saying the reopening has dragged on management’s financial forecasts.

The stock fell 7% Friday. 

That is is a problem for the broader stock market. Amazon’s $1.7 trillion market capitalization is about 4.5% of the total for the S&P 500. The index is market-cap-weighted, so moves in the stock weigh heavily on the market benchmark.

At the same time, the disappointing growth in e-commerce sales is a negative sign for other e-commerce companies. PayPal (PYPL), eBay (EBAY) and Etsy (ETSY) fell 1.4%, 4.2% and 5.6%, respectively. “There is concern that what Amazon is seeing is across the board in the tech sector,” says David Miller, chief investment officer of Catalyst Capital Advisors. There is “some carry over into PayPal,” Miller added. 

A separate issue is that portfolio mangers sometimes reposition their portfolios at the end of a month, a dynamic that may be at play Friday. Miller said that it is possible that fund managers are selling some tech shares, though that isn’t a certainty. To be sure, Bank of America data show $1.2 billion flowed into U.S. tech funds this week, indicating that investors remain eager for exposure to the sector. 

It was Amazon’s earnings doing most of the damage. 

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Why Is the Stock Market Selling Off? Here Are 2 Reasons. - Barron's
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