Why Amazon Stock Jumped 23% in January

What happened

Shares of Amazon (AMZN 6.23%) surged last month as it rode a broader recovery in tech stocks and made a number of operational announcements that seemed to position the company to return to profitable growth.

According to data from S&P Global Market Intelligence, the stock finished January up 23%.

Image source: Amazon.

So what

With the Nasdaq gaining 11% last month, broader tailwinds in the market were a big reason for Amazon’s gains. Inflation continued to cool off, and investors anticipated that the Federal Reserve would continue to slow its interest rate hikes, which it did on Feb. 1, raising the federal funds rate by just 25 basis points, its slowest hike in close to a year. As a cyclical business trading at a high valuation, Amazon will benefit from a slowdown in interest rate hikes and if the economy can avoid a significant recession.

As for the company itself, there were several news items that seemed to drive the stock higher. First, Amazon said it would expand the layoffs it announced in November from 10,000 to 18,000. Though layoffs mean real people losing their jobs, they often result in stock gains, as it shows that a company is reining in costs.

Amazon also announced that it would open its Buy with Prime program to any eligible sellers in the U.S. The Buy with Prime program allows online retailers on platforms outside of Amazon to add the Prime badge to listings and offer Prime members free shipping and returns. The move dramatically expands the addressable market for Amazon’s logistics services and could move the needle on the bottom line.

Finally, the company also announced that it would add a pharmacy benefit to Prime, called RxPass, that allows customers to get common generic medications delivered for a flat monthly fee of $5.

Buy with Prime and RxPass both show Amazon continuing to expand its ecosystem even as it cuts costs through layoffs and other moves.

Now what

Amazon’s fourth-quarter earnings report is due after hours on Thursday, and investors seem to think the stock will soar after Meta Platforms did the same following its earnings report yesterday. Analysts expect just 6% top-line growth and a steep drop in profits, which could give the company a low bar to jump over, but it also shows the challenges Amazon is facing.

With today’s gains, the stock is up roughly 40% since its bottom last December, showing a dramatic shift in sentiment toward Amazon stock. The fundamentals will have to improve for the stock to keep gaining.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Amazon.com and Meta Platforms. The Motley Fool has positions in and recommends Amazon.com and Meta Platforms. The Motley Fool has a disclosure policy.