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IS IT RISKY THAT AMZN IS THE SAFE HAVEN FOR INVESTORS?

IS IT RISKY THAT AMZN IS THE SAFE HAVEN FOR INVESTORS?

For months, TPA has been telling clients to be in BIGTECH in general and AMZN in particular. Owning mega-cap TECH has worked out extremely well. TPA has recommended AMZN and stocks like it even though we realize that the rally has become very narrow and that valuations have become stretched. AMZN’s PE, which many claim is meaningless, is 121 while the S&P500’s PE is 28. TPA has made this recommendation because stocks like AMZN are not only in the enviable position of avoiding a lot of the pain of the pandemic; they may also benefit from the current situation.


Now, there is more evidence that AMZN is not only benefitting from its unique position, but is evolving into a safe-haven for investors.

This report is not meant to be a negative stance on AMZN. On the contrary, at the bottom of this report are excerpts from TPA’s recent reports showing it is a proponent of the stock. TPA is only showing that recent patterns are becoming more extreme; moving AMZN from a good stock to own to a possible hedge.

DAILY CONTRARY MOVES

AMZN is increasingly moving in the opposite direction to the market on a daily basis. In the past month there were 9 days when AMZN was either up when the S&P500 was down or down when the S&P500 was up. 9 occurrences out of 20 trading days is 45%. This is a large percentage for a stock that has such a large weight in the benchmark. AMZN is 4.9% of the S&P500. Looking back over the past year, the percentage of the time AMZN moved opposite the market was only 25%. This is consistent with the past 3 years, when the contrary daily move was seen 26% of the time.

CORRELATION & BETA

The tables below confirm that AMZN’s performance is becoming increasingly detached from that of the market. The first table shows the results for the past 3 years. AMZN’s raw beta is 0.437 and the correlation (R squared) is 0.386. This does not show a strong relationship, but over the past month this relationship has headed even lower. In the past month, AMZN’s beta has been 0.116 and its correlation 0.149.

Of course, a good hedge for the market would have a beta approaching -1.0, but that does not really exist for being long another stock. Even traditional safe havens like CPB and MO have betas of 0.40 and 0.46, respectively. So, AMZN’s beta, which over the past 5 years is 1.32, has recently moved lower than that for classic consumer staple stocks.

This pattern will most likely continue. AMZN and stocks like it will most likely remain the outperformers. Clients should, however, ask themselves this question, how safe is a market in which AMZN is the hedge for equity portfolios?

AMZN and the S&P500 raw Beta and Correlation - past 3 years


AMZN and the S&P500 raw Beta and Correlation - past month

From TPA’s recent reports recommending AMZN:

TPA clients should still be in the winners in 2020 (6/10/20)

“Although stocks have staged a historic rally since 3/23, when TPA did tell clients the markets were historically oversold, it will still be a tough climb for the economy from here. TPA would advise clients, especially after the recent huge rally, to stick with stocks that will be less affected by the crisis. For example, TPA would still rather own AMZN than AAL, HD over KSS, and NFLX before HLT.”

Stocks Under the Thunderdome (7/23/20)

The other thing that managers have done is to find other places to invest for “safety.” Bill Callahan, investment strategist at Schroder Investment Management, was quoted as saying that large TECH stocks are “the new Treasurys…any hint of bad news sends the tech stocks soaring.” In fact, TPA has been saying this for months. In the past 6 months, the S&P500 is down 1.9%, but the TPA BIGTECH Index (AAPL, MSFT, AMZN, FB, GOOGL, GOOG, TSLA, NVDA) is up 42%.”

How to Avoid Sad Performance for the Rest of 2020 (7/31/20)

“TPA continues to believe that this problem will take a long time to resolve and, therefore, the same conditions that led to winners and losers for most of the year will be with us for many more months. The smart and logical strategy has been and will continue to be to stick with the winners….. The stocks below are high conviction longs for TPA clients. These are stock that: (1) have already proven themselves in the Pandemic environment, (2) either benefit from or are less harmed by the economic shutdown, and (3) are in a consistent, well-formed technical uptrend.”


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