While it is self-apparent that Fed’s rate cuts lead to cheaper cost of capital, it matters why the rate cuts were implemented in the first place. If the underlying reasoning stems from a weakened economy, aimed at stimulating it, history suggests a market downturn is likely after rate cuts. Such downturns can significantly impact the performance of trillion-dollar stocks, as these market giants often react sharply to macroeconomic signals.
Wharton School economy professor, Jeremy Siegel, noted in April that given the choice between rate cuts or strong economy, “it’s no contest, strong economy is better for the stock market.”
It appears that Fed Chair Jerome Powell Fed Chair is aware how hypersensitive the market is. After the latest FOMC meeting on Wednesday, he noted that “if you just set policy at a restrictive level, eventually you will see real weakening in the economy.”
Powell also referenced the now notorious unreliability of jobs data, which have been consistently revised, at 11 out of the last 13 months, in a downward direction. This dynamic is similar to the GFC era in 2008. He pointed out that the recent strong jobs data may also be “a bit overstated.”
For investors, all the signals are there to prepare to lock in profits on trillion-dollar stocks.
Trillion-Dollar Stocks: Meta Platforms (META)
Over one year, Meta Platforms (NASDAQ:META) has been one of the most consistently performing Magnificent 7 stocks. In that period, the company’s market cap increased by 90%, from $679 billion to $1.29 trillion.
Excluding Reality Labs for VR/AR content, Meta’s underlying business has remained strong. The integration of AI algorithms into its social media platforms and ad management has further boosted Meta’s deep ecosystem between Instagram, Facebook, WhatsApp and Messenger.
By linking with Bing and Google search results, Meta’s AI assistant (Llama 3) is also shifting the SEO game. In other words, Zuckerberg’s Meta continues to be an indispensable part of the internet landscape. However, it bears noting that Meta’s entry into dividend issuance, combined with $50 billion new share buyback program, points to shareholder enticement beyond the bottom line.
These moves to fortify shareholder loyalty ahead of potential market downturn are prudent, but is it more prudent to sell trillion-dollar stocks ahead of that scenario?
Alphabet (GOOG, GOOGL)
Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) has come under scrutiny during the Gemini launch fiasco. Much has been revealed about the company’s isolated culture with strong ideological commitments and the decision to proceed with a product previously criticized by insiders as “a pathological liar.”
Now perceived as stagnant and complacent, Alphabet relies on its entrenched market position and broad ecosystem of apps and services. Similar to how Meta depends on advertising revenue, Alphabet could face significant challenges during an economic downturn as businesses reduce their marketing budgets.
In antitrust proceedings in May, U.S. gov representative David Dahlquist clearly outlined that “advertising revenue is what drives Google’s monopoly power today.”
Despite these challenges, Alphabet’s financial performance remains robust. According to Business of Apps, consumers spent $47 billion on Google Play mobile games and apps during 2023. Further showcasing its financial strength, Alphabet reported a net income of $23.6 billion in the first quarter of 2024, similar to Apple’s (NASDAQ:AAPL) net income, and significantly up from $15 billion in the same quarter the previous year.
More importantly, as a high-growth tech stock, GOOGL has exhibited volatility during market instability. Over one year, Alphabet increased its market cap by 42%, from $1.56 trillion to $2.219 trillion. At its present price of $177 per share, GOOGL stock is well above its 52-week average of $141.28, making for a solid exit point to sell trillion-dollar stocks.
Amazon.com (AMZN)
Recessionary trajectory is a double-whammy for Amazon.com (NASDAQ:AMZN). The reduction of economic activity suppresses both Amazon sales and its cloud AWS network. Similarly to GOOGL, AMZN is also a high-growth tech stock with a demonstrated vulnerability during market downturns.
At the same time, Amazon grew substantially owing to its strong diversification across e-commerce, digital services and cloud computing. AMZN shareholders saw the company’s valuation grow by 50% over one year, from $1.3 trillion to $1.94 trillion.
But this only bolsters the case for profit-taking. At the present price of $186 per share, AMZN stock is 21% above its 52-week average price of $153.58, nearly double the performance of the wider S&P 500 benchmark.
On the date of publication, Shane Neagle did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.