I am particularly frustrated/aggravated/flummoxed/bewildered — in fact, to keep it topical, I would go so far as to say I feel beleaguered — by the phenomenon known as the “Amazon effect.”
You know, the beating any company takes any time there’s a whiff of a rumor that the great and mighty Amazon (AMZN) may perhaps someday sell something remotely related to that company’s products.
I saw it play out with grocery stocks in June. Costco (COST) and Kroger (KR) were “Bezosed” when Amazon told the world it was buying Whole Foods Market (WFM).
I saw it with Whirlpool (WHR) and Home Depot (HD) in July, when AMZN announced it would sell Kenmore appliances. This galls me because HD is much more than an appliance retailer.
But no matter. AMZN is lurking nearby. Everyone run and hide.
In May, Barron’s postulated that the recent drop in miles driven by Americans may be due to AMZN, as more shopping online equals less driving to the store or mall.
Look out, BP (BP), Jeff is coming.
There’s even a “death by Amazon” hashtag on Twitter. It’s getting a little ridiculous.
But Amazon struck again recently.
Recently, I awoke to find ULTA Beauty (ULTA) down 4% in the premarket.
This is the fastest way to generate cash since the ATM was invented (seriously).
There was no news on CNBC or on my broker platform. I had to go to Twitter (God help me) to find something. And there it was…
A RUMOR that AMZN was looking to team up with Violet Grey to push into the beauty market.
Violet Grey? Violet Grey?! What’s a Violet Grey?
Of course it didn’t matter, because this really had nothing to do with Violet Grey.
It had to do with the perception that AMZN may consider selling high-end beauty stuff. And that perception ultimately knocked ULTA stock off by as much as 5%.
What’s interesting is that I’m now seeing comments (yes, on Twitter) that this was an overreaction. Don’t worry, ULTA is solid. Buy the dip.
But is it really?
Kroger hasn’t done much since getting kicked in the shorts six weeks ago. Costco has been a dog with fleas since the news. And Home Depot is languishing, although it is early since it was lanced by Amazon.
The point is that, yes, these stocks may recover. But they may not. The Amazon effect is not to be trifled with.
On the other hand, I haven’t seen any definitive research that said a company’s bottom line was hurt by something AMZN did. It’s all just speculation and conjecture. But the market is driven by speculation and conjecture that can come out of the blue.
What bothers me the most is that I haven’t figured out how to handle it. Nobody has, from what I can gather.
When it comes down to it, is any stock safe?
Maybe Deere (DE) and Caterpillar (CAT) will be humbled when AMZN decides to sell farm tractors.
Maybe AMZN should take over the health insurance market. Then we’d have a single-payor system by default.
The Amazon effect, rational or not, is real. And it can hurt. If you’re a stock picker or trader, you could easily see a position go into the dumper because of an imagined outcome that may or may not come to fruition. I know I have.
You’ll just have to try to stay out of its reach.
About The Author
Meet Jon Lewis, With over 20 years of real experience, teaching AND trading, Jon will help you learn to use options profitably and safely in portfolios of any size.
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