Why Amazon Stock Jumped Again Today

What happened

After posting explosive gains in Thursday’s daily trading session, Amazon (AMZN 4.30%) stock saw another big jump in today’s trading. The e-commerce and cloud-computing giant’s share price closed out Friday’s session up roughly 4.3%. Meanwhile, the S&P 500 index’s level ended the day up 0.9%, and the Nasdaq Composite index closed out the session up 1.9%. 

The U.S. Labor Department published new Consumer Price Index (CPI) data on Thursday, and lower-than-anticipated inflation in October has helped spur a dramatic uptick in bullish momentum for the market at large. The CPI rose 0.4% on a sequential basis and 7.7% year over year, while economists were expecting a 0.6% sequential increase and a 7.9% increase compared to October 2021. The better-than-expected data has investors pouring back into Amazon and other growth stocks.

So what

Amazon stock surged 12.6% in Thursday’s trading following the release of the new CPI data, and positive momentum for the stock continued into Friday’s trading. Investors are hoping that the moderating inflation data may signal that the worst of the pressures on this macroeconomic front have passed, and that stocks are on track for a more sustained rebound. 

The Federal Reserve has been raising interest rates in hopes of tamping down on raging inflation, and the unfavorable macroeconomic backdrop has crushed stock valuations this year. In addition to trends impacting the broader market sending its share price lower, Amazon’s business performance has also been squeezed by inflationary trends. 

With most of the company’s revenue still coming from the e-commerce business, Amazon has been under pressure as inflation has led to rising costs and hurt profitability in an already low-margin segment. Business performance could improve significantly if inflation cools off. The Fed shifting away from large interest hikes could create a much more favorable backdrop for growth stocks and the market at large, so it’s not surprising that investors are enthusiastic following the recent CPI news. 

Now what

Even after the recent rebound, Amazon stock still trades down roughly 40% across this 2022’s trading and 46% from the high that it reached last year. For long-term investors, I think the stock remains a worthwhile buy at current prices, but there’s also a risk that the market’s recent rally will prove to be relatively short-lived and give way to more volatitity.