A wide range of stocks fell on Friday as the market focused on macroeconomic conditions and how the Federal Reserve Bank plans to deal with them.
Software as a Service (SaaS) Platform Shopify (STORE -5.59%) was down 7.4% on Friday morning, e-commerce provider Amazon (AMZN -4.76%) the stock fell 4.3% and the iPhone maker Apple (AAPL -3.77%) down 3.2%. As of 2:47 p.m. ET, the trio was still trading lower, down 6.1%, 4.1% and 3%, respectively. These actions followed broader market declines, as S&P500 lost 2.7%, while Nasdaq Compound down more than 3.3%.
There was very little company-specific news behind the selloff, but fears about the general state of the economy and the Fed’s strategy to fight inflation appeared to be driving those stocks — and the market — lower.
Federal Reserve Chairman Jerome Powell spoke at the Fed’s annual economic symposium in Jackson Hole, Wyoming, on Friday. Market participants were watching closely how the central bank plans to continue to fight inflation, which has plagued the past few months. Unfortunately, the takeaway was not what investors were hoping to hear, with Powell’s comments suggesting the Fed would continue an aggressive campaign to rein in runaway inflation.
Powell suggested that the path to inflation control would not come quickly or easily, saying: “Although higher interest rates, slower growth and looser labor market conditions will reduce the inflation, they will also cause hardship for households and businesses.” He added: “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”
While Powell’s comments did not provide specific details, the remarks appeared to suggest another 0.75% rate hike when the Fed meets again in September. This would be the third consecutive rate hike in four months. If investors interpret his comments correctly, that would take the key federal funds rate between 3% and 3.25%, its highest rate since January 2008.
A period of sustained rising interest rates could further weaken an already struggling economy and could contribute to plunging the country into a recession. This outlook has sent major stock indices into a tailspin.
While the spotlight was clearly on the outlook for the economy, there were some interesting rumors that could have further fueled the decline in our trio of tech stocks.
Reports emerged on Friday that the US Department of Justice (DOJ) may be considering an antitrust complaint against Apple, according to a report by Policy. The story noted that the DOJ was still in the early stages of the process and no concrete decision had yet been made, citing “a person with direct knowledge of the matter.” The report also noted that regulators may ultimately decide not to pursue a case.
Amazon had rumors of its own whirlwind. Early Friday, gaming-focused content provider GLHF announced that Amazon had made an offer to acquire the gaming titan. electronic arts and would make a public announcement later today. After being widely publicized, several subsequent reports have refuted this claim, including one by USA today, claiming that the article “violated our editorial standards regarding the use of anonymous and unverified sources”. The publication issued a retraction and removed the story.
Each of these three companies has a lot to lose in a protracted battle against inflation. Consumers are already having to make tough choices in the face of high prices at the pump and at the grocery store. If consumer spending continues to take a hit, it will undoubtedly weigh on online shopping, with Shopify and Amazon taking a subsequent hit. Plus, people would be much less willing to shell out big bucks for high-end devices, including Apple’s flagship iPhone, which accounts for more than half of the company’s revenue.
But history shows that each of these industry leaders thrived for the long haul, surviving economic upheavals, before thriving again. Additionally, investors with a long-term perspective will recognize these occasional price drops as an opportunity to buy world-class stocks on the downside.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Danny Vena has positions in Amazon, Apple and Shopify and has the following options: January 2023 long calls at $1,140 on Shopify and January 2023 long calls at $1,160 on Shopify. The Motley Fool holds positions and recommends Amazon, Apple and Shopify. The Motley Fool recommends Electronic Arts and recommends the following options: $1,140 Long Calls in January 2023 on Shopify, $120 Long Calls in March 2023 on Apple, Short Calls $1,160 in January 2023 on Shopify, and Calls short $130 in March 2023 on Apple. The Motley Fool has a disclosure policy.