Why Amazon, Meta Platforms, and Alphabet Slumped on Wednesday

Economic Overview - The U.S. economy has shown signs of stalling after three years of consistent growth, with recent concerns about tariffs and trade wars contributing to stock market volatility [1][2] - The U.S. Bureau of Economic Analysis reported a decrease in GDP at an annual rate of 0.3% for the first quarter of 2025, contrasting with economists' predictions of 0.4% growth and a significant drop from the 2.4% expansion in the previous quarter [6][7] Market Reaction - Major stocks, referred to as the "Magnificent Seven," including Amazon, Meta Platforms, and Alphabet, experienced declines, indicating investor reactions to weak economic news rather than company-specific issues [3][4] - Amazon's stock fell by 3.6%, Meta Platforms by 2.9%, and Alphabet by 2.4% as of the reported time [3] Economic Indicators - A growing number of economists predict a 50% chance of a recession occurring in 2025, with 40% of economists surveyed expressing this concern [7] - The definition of a recession typically involves two consecutive quarters of declining GDP, suggesting the economy may already be in the early stages of a recession [8] Implications for Companies - Price increases due to rising tariffs could reignite inflation, potentially leading to reduced consumer and business spending, which may contribute to an economic downturn [9] - The lower GDP figures were influenced by increased imports as companies prepared for tariffs, which may skew the data [10][11] Future Outlook - The next GDP figures will be crucial in determining if the economy has entered recession territory, with official declarations made by the National Bureau of Economic Research [12] - Despite current economic uncertainties, historical trends suggest that downturns can present opportunities for long-term investors to acquire quality companies at discounted prices [13] Company Valuations - Current forward earnings multiples for Amazon, Meta Platforms, and Alphabet are 29, 22, and 16 times respectively, which are considered attractive for long-term investors [14] - Economic downturns typically lead to reduced advertising budgets, impacting digital advertising revenues for these companies, while a pullback in consumer spending could affect Amazon's e-commerce sales [15]