Pay no attention to the president’s company-focused Twitter rants.
That is the advice being given by market experts to investors, notably in Amazon.com Inc. AMZN, +0.29% after President Donald Trump tweeted that he had “concerns” with the online retail giant. This was the latest example of Trump singling out a specific stock for condemnation on Twitter, and while Amazon shares initially fell in response, as has been the trend following such statements, the analysts said the tweets could be safely ignored and shouldn’t be the only factor traded on.
“Trump is way more bark than bite. Eighty percent of what he says never happens, and the other 20% is usually an opening gambit that’s way out of left field,” said Charlie Smith, chief investment officer at Pittsburgh-based Fort Pitt Capital Group.
He admitted that tweets like this “can throw the market for a loop,” but said it was extremely unlikely that the tweet represented an opening salvo in a conflict that would eventually manifest itself as legislation that might meaningfully hurt the company’s business over the long term.
Shares of Amazon fell as much as 4.6% after the microblogging missive, though they subsequently returned to positive territory, up 0.5%.
The tweet charged that Amazon isn’t paying its fair share of taxes and that it was hurting the U.S. Postal Service. However, it didn’t give any indication of what steps Trump might take to address the issues he sees with Amazon, or even whether he was planning anything concrete. Doing anything might be difficult, as both of Trump’s allegations are seen as unsubstantiated: the post office makes money off Amazon, and a recent New York Times report indicated that Amazon is “collecting sales tax in every state that has one.” On Wednesday, the White House said it had no specific policies or actions that were being considered against Amazon.
‘Trump is way more bark than bite. Eighty percent of what he says never happens and the other 20% is usually an opening gambit that’s way out of left field.’
Charlie Smith, CIO at Fort Pitt Capital Group
Thursday’s tweet wasn’t the first time Trump has called out Amazon. On Wednesday, the news service Axios reported that the president has wondered aloud if there was any way to “go after” the company, which is run by Jeff Bezos. Bezos also owns The Washington Post, a publication Trump has criticized, and which he has repeatedly referred to as the “Amazon Washington Post.”
Amazon is also not the first company to be singled out by Trump in ways that resulted in a share price drop. Boeing Co. BA, +2.77% fell in December 2016—after Trump’s election but before the inauguration—after he threatened to cancel an order with them over Twitter. The president also tweeted negatively about General Motors GM, +2.61% for producing the Chevy Cruz in Mexico; about Lockheed Martin Corp. LMT, +1.04% for the price of its F-35 stealth jet fighter; and about Nordstrom Inc. JWN, +0.88% for dumping the fashion label of his daughter Ivanka.
Nothing concrete materialized after these tweets and the effect on the stocks proved short lived. In some cases, the stocks shrugged off the tweets in dramatic fashion, sharply outperforming the broader market. Boeing is up more than 80% over the past 12 months, far exceeding the 12% rise of the S&P 500 SPX, +1.51% over that same period. Lockheed is up 27% over the past year.
If you’re a short-term trader, then you’ll pay attention to stuff like this. But the longer your investment horizon, the less you should care about this kind of noise. The only question Amazon investors should be asking themselves right now is, do you still think Amazon is a good company? – JJ Kinahan, chief market strategist at TD Ameritrade
“It’s amazing how people fall for this every time,” said JJ Kinahan, chief market strategist at TD Ameritrade, referring to the post-tweet drop in Amazon’s stock. “One thing that gets lost is how he comes out with a big statement, people get riled up, and then he does something more pragmatic or nothing happens at all.”
The strategist said recent Trump announcements about steel and aluminum tariffs—an issue that was seen as having a more concrete influence on corporate profits. While Trump’s initial comments indicated a hard-line approach, Treasury Secretary Steven Mnuchin subsequently suggested any tariffs might not apply to Canada or Mexico.
“If you’re a short-term trader, then you’ll pay attention to stuff like this. But the longer your investment horizon, the less you should care about this kind of noise. The only question Amazon investors should be asking themselves right now is, do you still think Amazon is a good company?” he said.
“The mistake a lot of investors make is that they don’t know what time frame they want to hold a stock for,” Kinahan said.”
President Donald Trump slammed Amazon.com Inc. AMZN 0.70% over the company’s business practices and its impact on the economy, adding to investors’ growing concerns about potential new regulations for the technology giant.
In a Thursday morning tweet, the president took aim at Amazon over the amount of taxes it pays, its use of the U.S. Postal Service and the company’s impact on traditional retailers. It was the latest in a sustained line of attack the president has levied against the online retailer since before his election.
“I have stated my concerns with Amazon long before the Election,” Mr. Trump wrote on Twitter. “Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!”
I have stated my concerns with Amazon long before the Election. Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!
An Amazon spokeswoman didn’t have an immediate comment about the president’s tweet Thursday.
Amazon has grown rapidly beyond its roots as an online bookseller, transforming into a dominant provider of cloud services, creating its own line of tablets and voice-activated speakers and extending its reach into traditional brick-and-mortar retail by acquiring last year the specialty grocer Whole Foods Market.
But as Amazon has grown, so have investors’ concerns about potential regulation targeting the company. Those fears crystallized this week as Amazon found itself once again in Mr. Trump’s crosshairs.
The missive Thursday, while repeating previous tweets regarding Amazon, comes amid a fierce backlash against Facebook Inc. and other big internet companies that has helped fuel a broader discussion about added regulation for the tech industry.
The president’s tweet followed a report by Axios on Wednesday that said the president has been looking at more strictly regulating Amazon, including through antitrust law, causing the company to lose billions in market cap as investors worried it might become a target.
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Amazon’s stock was up about 0.7% to $1,440.84 in midafternoon trading Thursday after finishing down 4.4% the day before. At one point midday Wednesday, the stock dropped more than 7%.
The U.S. Justice Department has no active antitrust investigations of Amazon, according to people familiar with the matter.
Mr. Trump’s tweet Thursday continues a well-established pattern of the president using the platform to blast Amazon and its Chief Executive Jeff Bezos, who also owns the Washington Post.
In December, Mr. Trump criticized the company’s use of the U.S. Postal Service for delivery, saying Amazon should pay more. In August, he said, the company was costing jobs as it damaged taxpaying retailers, as well as cities and states.
“Is Fake News Washington Post being used as a lobbyist weapon against Congress to keep Politicians from looking into Amazon no-tax monopoly?” Mr. Trump asked in a July tweet.
Even before his election, Messrs. Trump and Bezos exchanged barbs. Mr. Trump accused Amazon’s CEO of purchasing the newspaper to influence politics. “If I become president, oh do they have problems,” Mr. Trump said in a speech on the campaign trail.
The barrage of criticism, though, appears to have had no actual impact on regulation of the company.
Amazon’s collection of state sales taxes has long been a point of contention for both traditional retailers and state and local governments. Amazon for years didn’t collect sales taxes in states where it didn’t have a physical presence through a warehouse or office as permitted under federal law, creating the perception of lower-priced merchandise that helped fuel its growth.
But the online retail giant shifted its strategy in recent years, building more warehouses closer to consumers. That has triggered the need for it to collect taxes due to its physical presence.
As of last year, Amazon said it would start collecting tax on its own inventory in all 45 states that have a sales tax, and it also has struck some voluntary collection agreements for municipal taxes.
Still, analysts estimate a majority of sales on Amazon’s site stem from smaller merchants on its site. Many of those small businesses don’t collect sales taxes outside of the states where they are based, despite being part of Amazon’s logistics network, which can allow their merchandise to be shipped to warehouses across the U.S.
Amazon in January started collecting sales taxes for sellers in Washington due to a new state law, and will do so in April in Pennsylvania. It has also started turning over seller data in some cases to state tax officials.
The Supreme Court will hear arguments in April on a case from South Dakota challenging the standard of a physical presence as the way to determine whether to collect sales taxes. Brick-and-mortar retailers and state governments have been urging the court to overturn its 1992 precedent and a court ruling in South Dakota’s favor would upend the online retail landscape.
The president also took aim at Amazon’s use of the U.S. Postal Service for deliveries. Amazon is one of its largest customers, contracting with the quasi-governmental agency to deliver packages from the post office to customers’ doorsteps—the so-called last mile.
The Postal Service is mandated by Congress to charge enough to cover its costs, and must typically seek regulatory approval on pricing changes. But some critics have said the Postal Service has underpriced this type of delivery option, essentially subsidizing its last-mile deliveries because the agency already must deliver to U.S. addresses six days a week.
The president also blamed Amazon for putting thousands of retailers out of business. While many retail store locations have closed in recent years, it isn’t known how large a role Amazon may have played in the development.
Some people in the business community, including those who know Mr. Trump well, have adopted a theory that antitrust law has failed its historical purpose when it comes to Amazon, focusing too much on pricing and not enough on concerns that integrated businesses can be anticompetitive, people familiar with the matter have said.
A White House spokeswoman Thursday said, “the president has expressed his concerns with Amazon. We have no actions at this time.”
Amazon’s retail chief, Jeff Wilke, said in an interview last year that the company has grown horizontally and still has a tiny fraction of the market in most of the segments in which it does business. Professors on antitrust and competition say that this, combined with Amazon’s tendency to lower prices to benefit consumers, helps protect the company under current law.
Still, Amazon spent $13 million on federal lobbying last year, up from $2.5 million in 2012. Its team of 95 internal and external lobbyists includes former Senate Majority Leader Trent Lott and Brian Ballard, a Republican fundraiser who is close to Mr. Trump.
Amazon has lobbied on tax issues including the legislation signed by Mr. Trump at the end of the year, data-privacy issues, cybersecurity, government procurement and other matters, according to disclosure forms it has filed.
The company has also made a push to highlight its positive impact on the U.S. economy, touting the small businesses that sell on its site as well as its job creation. Last year, the company said it was creating more than 130,000 full- and part-time jobs domestically through the middle of this year, plans that were largely already in the works.
Amazon also launched a search for a second headquarters last year, promising it could bring as many as 50,000 jobs and more than $5 billion in investment to the winning city. More than 238 cities and regions applied, and Amazon selected three of its shortlisted 20 in the Washington, D.C., area. Some site selection experts have speculated the company may want to locate closer to lawmakers and regulators as it grows.
The tech rally has come to a screeching halt.
Facebook, Amazon, Apple, Netflix and Google have all helped push the market to one all-time high after another. But investors are suddenly worried about increased regulations in the wake of the Facebook/Cambridge Analytica user data scandal.
Shares of these big five techs — as well as the Nasdaq and broader market — have all fallen. But Facebook, Amazon, Netflix and Google owner Alphabet have been hit particularly hard. Each of them has plunged more than 10% in the past week and a half.
Analysts expect most Big Tech companies to post strong results this quarter and for the rest of this year. Experts say that the Big Tech stocks should eventually bounce back once investors remember how strong their earnings, sales and balance sheets are. Most of these companies are loaded with cash.
Yet there are legitimate concerns about whether politics will trump fundamentals.
If there is a crackdown on how Facebook (FB), Google (GOOGL) and Twitter (TWTR) (another insanely volatile stock lately) run their businesses, advertisers could flee as a result. And Trump supposedly is considering a change in tax laws or tougher antitrust laws against Amazon, which could hurt its business.
Washington probably won’t let up. Mark Zuckerberg is coming to testify before Congress next month, and stricter internet privacy policies could come after that. That could make tech stocks risky bets for awhile.
“The fundamentals are still positive and there is global growth. This is a good buying opportunity for the longer-term investor,” said Jeff Schulze, investment strategist at ClearBridge Investments. “But this regulatory overhang will be with the FAANG stocks for the next few months.”
Wall Street is also worried about how much top tech companies weigh on the broader market. Apple (AAPL), Google, Amazon, Microsoft, and Facebook accounted for more than 25% of the weighting in the S&P 500 at the end of February.
The last time tech was such a big component of the overall index was during the final stages of the tech stock mania on Wall Street nearly twenty years ago. Schulze thinks it’s unfair to compare 2018 to 1999 though.
“This is not the dot-com bubble of the late 1990s where there was hot money trading themes and ideas,” he said. “Major businesses in tech now have already been developed. There are real earnings and cash flow.”
That may be true. But a company can have solid fundamentals and still be too expensive.
“These are obviously really good companies with strong business models but valuations weren’t even being discussed. It was more of a momentum move,” said Eric Kuby, chief investment officer of North Star Investment Management .
“So much money was being put into tech. This was more overdue than overdone,” Kuby said.
Kuby isn’t shunning tech necessarily though. His firm owns shares of Alphabet because he thinks it’s a relatively good value compared to Facebook, Amazon and Netflix (NFLX).
He also owns chip companies AMD (AMD) and Qualcomm (QCOM), which he thinks have been unfairly punished in the recent tech selloff.
Qualcomm in particular has been hit hard because of the drama associated with rival Broadcom’s hostile attempt to buy it. The Trump administration blocked the takeover, citing national security issues since Broadcom (AVGO) is based in Singapore.
Kuby is more bullish on stable companies that have fallen out of favor but could offer more solid returns if the market volatility continues and the broader economy loses steam as well. He likes Kraft Heinz (KHC) and drug store giants CVS (CVS) and Walgreens (WBA).
But even if the Nasdaq continues to slide, the tech may not bring down the overall market. Several non-techs in the Dow, most notably Boeing (BA) and Nike (NKE), are still enjoying solid gains this year.
Older techs have thrived as well. Cisco (CSCO), Intel (INTC) and Microsoft (MSFT) are among the top Dow performers in 2018.
But one thing seems certain. It looks like volatility is here to stay and that is largely due to the fast and furious pace of headlines about the top techs. Traders are making quick bets to try and profit from the rapid moves — up and down — in these stocks.
“This is a big opportunity for day traders to profit off the movement for tech stocks on the long and short side. There has been a huge uptick in trading lately — especially for tech stocks,” said John Bartleman, president of the brokerage firm TradeStation.