Why Alibaba, Amazon, and Meta Platforms Stock Dropped on Wednesday

what happened

A wide cross-section of stocks fell on Wednesday, as the market focused on macroeconomic conditions and the Federal Reserve’s response to rising inflation. Unfortunately, the latest price increase has come with some collateral damage.

With it as wallpaper, an arrow from Ali Baba (Baba -0.96%) slip as much as 5%, Amazon (AMZN -1.31%) The stock fell 3.1%, and meta pads (dead 0.45%) It fell as much as 2.8%. When the market closed, the trio was still trading lower, down 4.9%, 3% and 2.7%, respectively. These stocks followed the broader market lower, as Standard & Poor’s 500 (^ GSPC -0.62%) and the Nasdaq Composite (^ IXIC -1.14%) It decreased by 1.7% and 1.8%, respectively.

There was very little company-specific news behind the sell-off, but concerns about continued interest rate hikes by the Federal Reserve and low growth expectations pulled these off. technology stock even less.

so what

The Federal Reserve made no secret of its aggressive plans to fight inflation, so investors were already anticipating a significant rise in interest rates. In an ongoing attempt to tame hyperinflation, the Federal Reserve raised interest rates by 0.75%, the third such increase since June. This latest rate raised the federal funds rate to a range of 3% to 3.25%, its highest level since early 2008. It also marks the fifth increase so far in 2022.

The Fed statement said, “Recent indicators point to modest growth in spending and production. Job gains have been strong in recent months, and the unemployment rate has remained low.” Unfortunately, inflation remains particularly stubborn, exacerbated by supply chain issues.

As a result, the Fed expects that could He raised the federal funds rate to 4.4% by the end of this year, and to 4.6% by the close of 2023.

While investors widely expected a rate hike, what they did Not The corresponding drop in GDP forecast was expected. The Fed released its Economic Outlook summary, which now calls for GDP growth of just 0.2% for 2022.

The decision comes on the heels of a report that inflation was higher than expected in August. The Consumer Price Index (CPI), the most widely followed measure of inflation, rose 8.3% from the same period last year, worse than the 8.1% increase economists had expected.

What now

What little news about a company was certainly positive, though not necessarily impressive. Amazon has announced the launch of its latest line of Fire HD tablets, and Meta Platforms plans to cut its expenses by at least 10% by the end of the year, according to a report in The Wall Street Journal. Given the positive nature of these developments, the drop in stock prices today was undoubtedly related to the economy.

Given the already weak macroeconomic outlook, a prolonged period of high interest rates could effectively push the country into recession. The prospect that the battle to control inflation will eventually take longer than originally anticipated has left major market indices reeling.

There is no doubt that a prolonged downturn will severely affect our three companies. Consumers have been feeling bad for a while, which has left them making difficult decisions, whether at the fuel pump or in the grocery aisle.

Consumer spending is the cornerstone of the economy and if people decide to rein in spending, there is no doubt that it will be reflected in a decline E-Commerce purchases, squeezing the results of both Alibaba and Amazon. Moreover, it is well documented that companies tend to reduce marketing spending when the economy heads south, as it is an area that is easy to speed up or slow down. Meta Platforms earns the bulk of its revenue from digital advertisingAs consumers cut back on spending, companies cut back on ads, which in turn will hit Meta Social media Platforms located directly in the wallet.

It is important to note that tides are part of the natural cycle of the economy, so this has all been seen before. Moreover, both of these companies have survived previous recessions, which increases the likelihood that they will do so again.

Finally, both of these stocks are cheaper than they have been in years. Meta Platforms, Amazon and Alibaba shares are currently selling three times, two times and two times the forward sales, respectively, when the reasonable price-to-sales ratio is between one and two. For investors who are looking into the future three to five years, buying these world-class companies at very low prices would seem like a wise move indeed.

Randy Zuckerberg, former director of market development and spokesperson for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackie, CEO of Whole Foods Market, an Amazon company, is a member of The Motley Fool’s Board of Directors. Danny Vina He has positions at Amazon and Meta Platforms, Inc. Motley Fool holds positions at Amazon and Meta Platforms, Inc. Recommend Motley Fool Disclosure Policy.