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Stock Trading Market Observation for September 22nd

Today the most market-expected event is the FOMC statement with insights on inflation, economic growth and a breakdown fo individual FOMC member’s interest rate forecasts. In recent previous statements the Fed has expected a below 3.5% PCE increase by the end of the year, despite the “temporary” surge of 3.9%. The S&P500 index just reached a new historical high, fostered by better than expected figures related the job market.

However, a lot of volatility is expected after the statement, as tapering of the loose monetary policy is widely cautioned about – there have been some hawkish comments in the summer among FOMC members. On the other hand, we have prevailing global risks, debt ceiling issues, China problems, recent relative data weaknesses, calling for a tapering no earlier than November. With the vaccination progress and economic outlooks improving there is a clear above-target inflation risk, and the Fed interpretation of a “temporary” recent resurge might prove wrong. The 10-year Treasury yield is up 1 basis point to 1.33%.

The two sides of the coin are more or less equally weighted now, and no one is expecting an official announcement of trimming the USD 120B monthly asset purchases on Sept 22nd. It is specified that this will happen by the end of the year, but most probably it will be bound with COVID resurgence results, weighing on the economic outlook and/or higher than expected inflation figures, together with future employment reports, hopefully better than the modest August figures. That’s why a considerable amount of volatility is expected by the end of the trading session, especially during the 30 min Powell News Conference following the statement, and in the next few days, calling for extra caution in day-trading risk management.

The prevailing market colour is green, with non-cyclicals /defensive stocks like healthcare and utilities companies/ trading neutral. The biggest gainers in such broad market optimism are the financials, technology stocks, industrials and energy.

Amazon (AMZN) Investing Opportunity

With an mcap of USD 1.7T /ranking after AAPL, MSFT, Alphabet/ and ever-growing and developing businesses, even during the pandemics, AMZN has always been an interesting stock to watch and trade. It is present in 271 hedge funds’ portfolios at the end of the second quarter of 2021 and the all-time high for this statistic is 273.

Its operations is officially divided into:

  • online stores – about 52% of total revenue/
  • third party seller services /commissions, shipping, fulfillment and other seller services related to the online shopping/ – about 20% of total revenue
  • Amazon Web Services /AWS/ – about 11% of total revenue, topping the worldwide market share for cloud infrastructure service with one third
  • Subscription services /like Amazon Prime, Amazon Music, Prime Video/, contributing about 6% of total revenues
  • Revenues from advertising and physical stores with approximately 5% of revenues for each segment

Amazon is in a growth stage with double digit y/y growth /above 14%/ with respectively modest operating profit margins and with its solid, progressive, covid-thriving and competitor-beating business model has been an investors’ favorite most of the time. However in recent times it is underperforming the broad market index /pictured as the SPY ETF on the graph/.

It is now trading with a 58.68 TTM P/E ratio and a 50.01 forward P/E ratio, which is pretty high even for a firmly successful technological giant. Buy and strong buy ratings have slightly decreased in September since August, but still do prevail. The basic technical analysis with MA20/exp/ crossing below MA50/exp/ since August 8th also signal a problem, together with the higher traded volume in big drop red candles from the previous two days.

The company is now investing in new payment technology in its physical stores, going a step further with its hardware and software businesses integrated into third parties as well. The new CEO Andy Jassy has also recently announced ambitious plans for further development of the entertainment segment buy a series of acquisitions, thus able to produce more original content.

Obviously, regardless of recent profit taking in the technology sector, the giant is unstoppable, and after the pending volatility, correlated with the broad index, it is set to reach a target above USD4000 according to the majority of analysts, covering the company.

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