Yahoo Finance answers: What’s wrong with Amazon?
Nothing! There’s not a thing wrong with Amazon (AMZN). So why has the stock slumped of late? One word: Trump.
President Trump dislikes Amazon CEO Jeff Bezos, who also owns the Washington Post, which frequently criticizes Trump. So Trump sometimes jabs at Amazon, as he did on March 29, when he wrote in a tweet that Amazon puts local shops out of business, rips off the U.S. Postal Service and shirks its obligation to pay taxes.
Analysts have debunked just about all of these. Amazon does threaten physical retailers, but it also represents the cutting edge of innovation in commerce. And many local proprietors use Amazon to sell their products to a larger marketplace than they’d ever reach on their own. Amazon now pays sales taxes in all states that levy them. And it’s one of the Postal Service’s biggest customers, providing a key source of revenue as other sources dry up.
Still, a hostile president can cause trouble for a company in his crosshairs, even if his actions are politically motivated. There’s probably not a lot Trump could do, even if he were determined to harm Amazon. But there is one big federal contract pending for Defense Dept. cloud services, and Amazon is a lead contender. Trump could interfere with that.
Several companies have faced threats of some kind of interference from Trump—and a corresponding drop in their stock price. But what normally happens is the storm passes and the stock recovers. So the recent dip in Amazon—roughly 5%—probably won’t last.
A broader selloff in tech stocks has raised other questions, however. Here’s what our audience wants to know:
Why is all tech being affected just because Facebook is having problems? Mainly because regulators could pass new laws that affect a variety of tech companies, both in the United States and overseas. Facebook (FB) is at the center of this controversy, after revelations that a political consulting firm working for Trump’s presidential campaign obtained unauthorized data on as many as 50 million U.S. Facebook users. The stock has tanked, and even Mark Zuckerberg, Facebook’s CEO, acknowledges that new regulations may be inevitable.
Is new regulation of Facebook a real possibility? Yes, but that isn’t necessarily a bad thing. New rules might govern political ads on Facebook and other social-media platforms, including Twitter (TWTR) and Google’s YouTube (GOOGL). There could also be new rules governing what such tech firms do with all the user data they control. But it might workout just fine for Big Tech. Ordinary media firms already deal with similar rules. The Republican-controlled Congress will probably act with a light touch, if it does anything at all. Blowback could be rougher in Europe, where privacy laws are stricter. But tech firms are rich and powerful and will weather whatever blows their way.
There’s been broader speculation about whether big names, including Facebook, Google parent Alphabet, Apple, (AAPL) Amazon and Microsoft (MSFT)—which represent an increasing portion of overall stock indices—are losing their luster as market leaders. It’s possible, but a recovery in these shares may be more likely. Nothing fundamental has changed about the huge role digital technology now plays in the U.S. economy. And most of those firms remain hugely profitable. If, or when, markets refocus on fundamentals, tech could shine once again.
Confidential tip line: rickjnewman@yahoo.com. Encrypted communication available.
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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman
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