In the past month, Amazon stock rallied the most against the S&P 500 in a whole year. Ahead of Friday’s opening bell, the Amazon Maven looks at the key reasons why.
On the same day that the S&P 500 clocked its sharpest daily loss since mid-June’s Fed Day and second sharpest since May, Amazon set different kinds of records.
Shares of the cloud and e-commerce giant reached an all-time high on July 8, while rallying relative to the broad market the most in the past 12 months (see first graph below). On Thursday, against a tech-rich Nasdaq index that dropped -0.7%, Amazon shares climbed 0.9% instead.
© Provided by Amazon Maven on TheStreet Figure 1: Amazons logo.
(Read more from the Amazon Maven: Amazon Stock Zips To New Highs: Revisiting The Bull Case)
Strongest rally in a year
The chart below shows a simple long AMZN, short SPY strategy, rebalanced daily, and its performance over the past 12 months. Notice that Amazon stock lagged the market consistently since this time last year, more so in the six months between Q4 of 2020 and Q1 of 2021.
But shares began to find their footing around mid-May. In the past month alone, AMZN climbed 14 percentage points higher than the S&P 500. On Thursday, July 8, the stock price topped $3,700 apiece for the first time ever, as market cap of nearly $1.9 trillion fast approached the $2 trillion milestone.
© Provided by Amazon Maven on TheStreet Figure 2: Long-Short AMZN vs. S&P 500 (base 100).
(Read more from the Amazon Maven: Why Amazon Stock Climbed After Jeff Bezos’ Departure)
Why such momentum?
The first reason for the recent spike may have to do with macroeconomics. Mid-to-long term interest rates continued to decline. Lower yields tend to favor growth stocks, as future earnings and cash flow are discounted to present value at a lower discount rate. On July 8, not a coincidence, the 10-year treasury yield dipped again to 1.29%, breaching 1.3% for the first time since February.
One key reason behind the decline in yields may be quite relevant for Amazon. The markets have grown concerned about the impact of the COVID-19 delta variant on the global economies. An environment of slower-than-expected reopening could favor cloud and e-commerce names, like Amazon.
The third possible reason is more specific to the company. Founder Jeff Bezos has recently handed the position of company’s CEO to former Amazon Web Services head executive Andy Jassy. Investors may be anticipating Mr. Jassy’s fresh perspective on sticky issues like labor relations and antitrust, or they could be relieved to see the transition in the rearview mirror.
In either case, Amazon stock may have benefited from improved investor sentiment, especially after shares remained stuck below all-time highs for 10 long months.
Amazon stock has rushed way ahead of the S&P 500 in the past month, partially offsetting the underperformance of the past year. What are your thoughts on AMZN?
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© Provided by Amazon Maven on TheStreet
(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)
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