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Bear attack looms for Amazon stock; Should you avoid trading AMZN?

Bear attack looms for Amazon stock; Should you avoid trading AMZN?

In 2023, Amazon (NASDAQ: AMZN) experienced a remarkable surge, riding the wave of the artificial intelligence (AI) frenzy, which propelled the e-commerce and cloud computing titan to record-breaking quarterly profits. 

This rally pushed Amazon stock to a fresh 52-week high, although it has since dipped slightly. 

However, Amazon now finds itself exposed to fresh legal risks, potentially introducing new uncertainties for the company and its stock market performance. 

What happened?

On September 26, the Federal Trade Commission (FTC) unveiled its much-debated antitrust lawsuit against Amazon, accusing the technology giant of leveraging its “monopoly power” to inflate prices, degrade quality for consumers, and illicitly undermine competition.

The complaint, issued by the FTC and attorneys general from 17 states, was filed in federal court in Seattle.

In it, the antitrust regulator and 17 states explained Amazon’s two-sided strategy through which the company “unlawfully maintains” its monopoly power. 

In particular, the FTC highlighted the “anti-discounting measures” Amazon uses to harm sellers and prevent other retail peers from offering lower, more competitive prices than itself. As a result, the company effectively keeps prices higher for products sold on the internet, the agency alleged. 

Furthermore, the lawsuit accuses the e-commerce company of “effectively” requiring that sellers use its “costly” fulfillment solutions in order to acquire the bragged Prime badge for their products – making it significantly more expensive to conduct business on the platform. 

Consequently, sellers are paying $1 of every $2 to Amazon, FTC Chair Lina Khan said in a briefing on Tuesday.

“The upshot here is that Amazon is a monopolist and it’s exploiting its monopolies in ways that leave shoppers and sellers paying more for worse service.”

– Khan stated.

What does this mean for Amazon stock?

Shares of AMZN closed 4% lower at $125.98 on Tuesday, September 26, as investors jumped ship in the wake of the lawsuit reports.

AMZN 1-day price chart. Source: Finbold

Unsurprisingly, the stock immediately faced selling pressure as FTC’s complaint was unveiled, pushing the share price to a 3-month low. 

It remains premature to conclude whether the recent stock dip represents only a temporary setback for Amazon’s investors as much hinges on the forthcoming legal proceedings – whether the company will contest the charges or negotiate a settlement with prosecutors. 

However, it’s not unexpected if bearish sentiments persist for now, as investors typically adopt a defensive stance to limit potential losses in such circumstances.

Over the past week, Amazon’s shares fell more than 9% and nearly 5% on a monthly basis. 

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Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

Read also:
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