Why Amazon Stock Is Pulling Back Today

What happened

Shares of Amazon (AMZN -2.74%) were heading lower today as a number of macroeconomic factors seemed to weigh on the stock and the Federal Trade Commission and 17 states filed suit against Amazon over monopolistic behavior. 

As a result, the stock was down 3.4% as of 11:15 a.m. ET, trending with a broader sell-off in the Nasdaq Composite, which was down 1.2% at the same time.

Image source: Amazon.

So what

The core of the FTC case is that “Amazon is a monopolist and it is exploiting its monopolies in ways that leave shoppers and sellers paying more for worse service,” as FTC chair Lina Khan told reporters on Tuesday.

A wide range of challenges also seem to be weighing on the tech giant right now. First, stocks have been steadily sliding since last Wednesday, when the Federal Reserve projected that interest rates would stay high. 

High interest rates act as a brake on the economy, and Amazon is exposed to the cyclicality of the economy through both its cloud computing business and its e-commerce business. Growth at Amazon Web Services (AWS) has slowed significantly in recent quarters, which the company has blamed on customers being more cost-conscious. 

Similarly, its e-commerce segment has been sluggish in the aftermath of the pandemic, and Wall Street seems to see continued headwinds in the consumer discretionary segment. Last night, Jefferies downgraded NikeUrban Outfitters, and Foot Locker, warning that the restart of student loan payments could hurt these businesses. While Jefferies didn’t explicitly mention Amazon, the restart of student loan payments in October seems likely to affect it as well, especially as it primarily sells discretionary goods and it’s popular with younger shoppers. 

Finally, a government shutdown also looms and is likely to affect Amazon and the broader economy.

Now what

The FTC’s suit against Amazon is the most newsworthy event today, but investors seem to be preparing for the current macro headwinds to persist longer than expected.

Amazon still trades at a premium valuation, and it has to earn that valuation through margin expansion. Weak consumer and cloud spending and now a rising threat from the FTC are going to make it more difficult for the company to grow profits.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Amazon.com and Nike. The Motley Fool has positions in and recommends Amazon.com, Jefferies Financial Group, and Nike. The Motley Fool recommends Foot Locker and recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.

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