The S&P 500 is mired in a sharp sell-off that’s raising eyebrows, particularly among shareholders of hard-hit technology stocks.
So far, the S&P 500 is down about 8% from its all-time high on February 20, while the tech-heavy Nasdaq 100 has retreated 12%.
It’s been even worse for big tech stocks, including the so-called magnificent seven. Roundhill’s Magnificent Seven ETF (MAGS) is down 18% from its January peak, and Amazon shares have lost 20% of their value since early February.
Amazon’s decline is especially jarring because it sharply contrasts with 2024, when artificial intelligence activity boosted demand for its cloud data business, AWS, causing Amazon’s stock price to soar 44%.
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Given the recent sell-off, investors are likely wondering if Amazon’s stock will continue to tumble.
Andy Jassy, chief executive officer at Amazon.com Inc., has ridden a wave of AI demand, but Amazon’s stock has tumbled recently on growing economic worries.
Amazon’s stock price gets hit on two fronts
Amazon’s (AMZN) success is due to reimaging major markets.
First, it flipped retail on its head by spearheading the shift from brick-and-mortar stores to online shopping. Then, it launched AWS in the late 2000s to rent out unused computing power in its data centers, which eventually shifted companies’ data away from enterprise networks to cloud and hybrid networks.
The strategy has undeniably paid off. Amazon’s annual revenue grew to nearly $640 billion in 2024 from $34 billion in 2010. Unsurprisingly, the company’s sales growth has been a boon to investors. Amazon shares are up about 2,300% over the same period.
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While Amazon remains a Goliath e-commerce retailer and cloud service provider, investors are wrestling with two growing worries:
A potentially weakening economy, and A possible reset in AI spending.
The economy is still solid, given gross domestic product (GDP) increased by 2.3% in the fourth quarter. However, mounting evidence shows it could be a tougher slog in 2025.
Inflation is much lower than the 8% rate recorded in 2022, but it has trended higher recently. According to the Consumer Price Index (CPI), inflation was 3% in January, up from 2.4% in September. That’s pinching consumers who are already cash-strapped.
We’ve also seen a steady pick up in layoffs cause an uptick in unemployment, including in high-paying technology and Federal jobs. About 172,000 American workers were laid off in February, according to Challenger, Gray, & Christmas. That was the biggest job loss in February since 2009.
Those concerns have market watchers rethinking consumer spending this year, including discretionary purchases. Certainly, Amazon’s status as a low-cost retailer helps insulate it from a slowdown, but it doesn’t make it immune to a recession.
Amazon could also see a reset in AWS revenue if businesses rein in AI efforts to conserve cash during a downturn. There’s little sign of slowing yet, but businesses could rethink spending if end markets soften, leaving Amazon with more capacity than forecast.
Amazon’s stock flashes a rare signal
With retail spending concerns and AWS question marks, it’s easier to understand why Amazon shareholders have hit the sell button to lock in last year’s gains.
While Amazon may continue falling, some signs suggest that selling is getting overdone. If so, Amazon’s stock could soon see a relief rally.
One of the signals that may be flashing is the relative strength index or RSI. RSI (14) measures price action over the preceding 14 trading periods and can signal when stocks are overbought or oversold.
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When the RSI exceeds 80, it’s an overbought warning. However, when it slips below 30, it can indicate shares are about to rally off their lows.
On March 10, Amazon’s RSI is about 27. That’s the lowest level since August, when it reached 26 on August 5, just before a big rally that lifted Amazon shares 45% by the end of 2024.
The potential oversold signal isn’t lost on long-time hedge fund manager Doug Kass.
Kass correctly predicted the current stock market sell-off, warning of risks in December and reiterating the likelihood of a drop through February.
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Now that stocks have fallen, Kass said in a post in his TheStreet Pro diary that he switched gears and started bargain-hunting stocks that could benefit from a short-term relief rally, including Amazon.
On March 6, Kass started a long position in Amazon stock, and on March 10, he took the position to what he describes as a large position
Kass isn’t the only one who is warming up to Amazon.
Long-time trader Bob Lang also thinks that Amazon shares could be setting up for a relief rally soon.
“Money flow is bearish but is improving; above zero would be a good start for the bulls. All in all, we see this corrective move in Amazon being closer to the end as the stock bounces off the 200-day moving average,” wrote Lang on TheStreet Pro. “This might be a good spot to scoop up more shares if you are light.”
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