We've had to defend Amazon before... 👇

But we won't be doing that today. You see, it's all their fault...

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### What did Amazon do wrong?

On the left, Q1 2022 S&P 500 earnings growth. On the right, S&P 500 earnings growth excluding Amazon. 👇

Double digit growth was within reach, but Amazon messed it up for everyone!

Is that petition to send Bezos to space permanently still open?

(Yes, I know Jassy's in charge now).

Amazon's earnings report clarified the reasons 👇

• Net loss was $3.8 billion in the first quarter, or$7.56 per diluted share, compared with net income of $8.1 billion, or$15.79 per diluted share, in first quarter 2021.
• First quarter 2022 net loss includes a pre-tax valuation loss of \$7.6 billion included in non-operating expense from our common stock investment in Rivian Automotive, Inc.

Some pretty hard comparisons with 2021's incredible growth and the losses from their Rivian investment had an outsized impact on Amazon's earnings and the index stats as a whole.

Factset's Earnings Insights also underline the weakening earnings surprise trend in the S&P 500 this quarter.

In aggregate, companies are reporting earnings that are 3.4% above expectations.
This surprise percentage is below the 1-year average (+14.1%), below the 5-year average (+8.9%), and below the 10-year average (6.5%).
If 3.4% is the final percentage for the quarter, it will mark the lowest earnings surprise percentage reported by the index since Q1 2020 (+1.1%).

Although profit margins are still generally pretty healthy, the bar to surprise is far, far higher now...

### Broken Charts

Amazon's taken a battering post-earnings. Deservedly given the general risk backdrop and commentary in their earnings report. But if you look at a chart like this with that green daily close yesterday...

Then you combine it with this kind of options sentiment...

What do you get...?

### Average Abuse Must End

First up, averages are useful. They can help to get a handle on lots of information, see if things are getting better or worse, that kind of thing.

But you have to account for the variance!

Here's a perfect example from awealthofcs. The Nasdaq's been obliterated over the past month, losing 13.2%, ("the 12th worst monthly loss on the Nasdaq since its inception in the early-1970s, and now down more than 23% from all-time highs")

Naturally, people are looking to history as a guide to the future...

What usually happens after a seriously bad month in the Nasdaq?

Take a look 👇

On average, it works out pretty well...

But look at that variance!

• After 1 year, you could be down (a further) 44.7%, or you could be up by 83%
• After 3 years, you could be down (a further) 60.8% or you could be up by 127.1%!

How is this useful?!

Everyone knows that major stock indices (at least in the US) generally go up over time. That's why we wrote this 👇

They also go through periods of significant drawdowns. Historical analogues don't necessarily serve a purpose here.

"History doesn't repeat, but it often rhymes"

Rhymes with what though?

The historical analogue where your portfolio is down by another 60% in three years, or the one where it's up by 127%?

What we want and what we get are usually two different things...

David's weekend note to premium members maps the territory... 👇

ICYMI, David's thoughts on the Zero Lower Bound and Fed Policy (starting with the FOMC meeting tomorrow) are here 👇

### The RBA Finally Hikes Rates

After the hotter than expected CPI print, a hike seemed likely. The RBA duly delivered right in the sweet spot between 15bps and 40bps.

A 25bps hike delivered.

Some had expected the RBA to wait for the 18th of May wage report, but the RBA's conversations with businesses were enough to seal the deal.

Lowe explained in the conference call that approximately 40% of firms were now approving wage rises above 3%, where previously the trend was 2 to 2.5%.

That was enough for the bank to finally consider the wage growth as 'sustained' and start the hiking cycle.

Unemployment is currently at 4% and the RBA sees it hitting 3.5% at some point this year.

The RBA's forecasts see the cash rate hitting 1.5-1.75% by the end of 2022, and Lowe specifically mentioned 2.5% as a 'normal' interest rate, suggesting that's their best guess at the neutral rate.

The Aussie rallied, but global growth (or lack of it) will probably be the bigger driver for AUD in coming months.

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