Profits at Amazon Drop as Bezos Becomes the World’s Richest Man

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Finally, the love affair with tech stocks is over…for now.

According to The Australian Financial Review:

Investors were jolted out of their complacency overnight, as a sell-off in technology stocks that began around half-way through the trading session picked up momentum into the closedragging the S&P 500 back from record territory.

Yet, as you can see, the temporary drop hasn’t drastically affected the index’s climb year-to-date.

S & P Index July 28-17

Source: Google Finance

For the past month I’ve been focusing on the US market, which is making all the headlines. Equity valuations appear overvalued, the US Federal Reserve is in the middle of a hiking cycle, and investors are piling into passive strategies.

I believe right now is a good time for critical thinkers.

Investors cannot simply pile on top of one another hoping more will do the same, increasing their returns. That sounds like more of a pyramid scheme than an investment strategy.

Yet I doubt the love affair with tech companies has come to an end.

Just look at what happened to Amazon.com, Inc. [NASDAQ:AMZN] overnight. The companies hit a record high after announcing that profits had declined and costs were mounting.

Thankfully, later that same day, Amazon traded lower. However, at one point, the elevated share price pushed Jeff Bezos (Amazon’s founder) above Bill Gates as the richest man in the world.

Thoughts for the weeks ahead

Our own earnings season is just around the corner. And analysts are gearing up for strong results. Credit Suisse analyst Hasan Tevfik wrote in a note to clients:

A stronger global economic backdrop and a stabilising Aussie economy should be enough to support further earnings-per-share [EPS] from here.

Tevfik’s team has forecasted record positive EPS growth in all major sectors over the next 12 months. The bank believes ‘…the combination of rising earnings and higher bond yields is a positive one for value and cyclicality in Australia’. According to The Australian Financial Review, Credit Suisse hasn’t been so bullish on earnings in 10 years.

Yet I would argue their optimism should fuel your pessimism.

I suggest you put little weight on what happens from quarter to quarter. Instead, focus on the long term and look for great businesses that are resistant to change. That way, you can confidently hold your investments through temporary dips and yield potentially amazing long-term returns.

Regards,

Härje Ronngard,

Junior Analyst, Markets & Money

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Härje Ronngard

Härje Ronngard

Harje Ronngard is a Junior Analyst at Markets and Money.

With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation.  

Härje Ronngard

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