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Greetings! Wall Street wisdom says when a recession is on the horizon, investors should flock to defensive companies that sell things people always need, like groceries and healthcare. At the same time, they should flee cyclical firms that sell optional stuff cash-strapped shoppers will avoid or put off buying, like luxury goods and furniture. Which is why it caught me off guard that, out of all the large tech firms that were battered in today's monster stock sell-off, Amazon was among the worst off. Shares of the e-commerce giant closed down 9%, compared to the broader S&P 500's 5% fall. The decline clearly had more to do with the prospects for Amazon's e-commerce business than those for Amazon Web Services, since shares of cloud rivals Microsoft and Google closed down just 2% and 4%, respectively. In other words: Wall Street seems to believe Amazon's e-commerce business is more cyclical than defensive. I find that surprising, since one of the biggest growth drivers in Amazon's e-commerce business over the past several years has been everyday essentials—items like toilet paper and laundry detergent that households have to buy repeatedly. Amazon's sales of those kinds of items grew 90% faster in 2024 than the rest of the company's selection, I recently reported in a profile of Amazon's retail CEO. At the same time, the company also has a sizable grocery business through Whole Foods and Amazon Fresh—another area where customers make repeat purchases. Given that, you would think investors would view Amazon less as a cyclical stock and more as a trusty everyday retailer such as Walmart (down 3%), Costco (flat) or Kroger (up 5%). Donald Trump's tariffs will batter each of those companies, but their shares all performed much better than Amazon's. Still, so much of the highest-margin stuff that shoppers buy on Amazon, such as electronics, comes from outside the U.S., mainly China, and these items could get significantly more expensive because of the Trump tariffs. That's why investors appear to be betting that if there's really a recession, Americans will keep spending with physical retailers and pull back from online shopping. I wouldn't be so sure. At this point, buying stuff online and having it delivered to your doorstep is as American as apple pie. Big tech's other big loser in Wednesday's market bloodbath was Apple, whose stock fell 9%. You can practically hear the gnashing of teeth over Trump's tariffs at the company's Cupertino, Calif., headquarters. After all, this is a company that has spent years trying to lessen its dependence on manufacturing in China after a trade war with the country during Trump's first administration and pandemic-related supply chain disruptions. But Apple's efforts to build up manufacturing in Vietnam, India and other countries didn't end up giving it any protection from the second Trump administration's new tariffs, which apply to all of those countries. Apple has some tough choices to make. Its products, already among the most expensive on the market, will become even more costly if the company decides to pass on the cost of the tariffs to customers. Or Apple can eat that cost itself, at the expense of its profits. Either way, the outcome won't be pretty.—Nick Wingfield • The stock market swooned following Trump's tariff announcement, with the Dow, S&P 500 and Nasdaq Composite falling 4%, 4.8% and 6%, respectively—the worst day for each of them in five years. • EU regulators are considering fining Elon Musk's X more than $1 billion for violating the Digital Services Act, which requires companies to police disinformation and other illicit content, The New York Times reported. Dealmaker was named the "Best in Business" newsletter for its insightful coverage of private technology and the AI hype cycle. Start receiving the newsletter here. |
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