The start of a new month was not enough to inspire lasting gains for the stock market. After a brief market jump at the open, investors retreated throughout the day, returning the gains of a substantial rally in October, sending the Dow Jones Industrial Average (^ DJI -0.24%), S&P500 (^GSPC -0.41%)and Nasdaq Compound (^IXIC) slightly lower during the day.


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Data source: Yahoo! Finance.

For a long time, the biggest companies in the stock market have held up much better than the smaller ones. Yet this dynamic has reversed in recent times, with many so-called FAANG Shares experience substantial losses.

This trend continued on Tuesday, when the two (AMZN -5.51%) and Alphabet (GOOGL -4.28%) (GOOG -4.39%) were down sharply, once again. Below, you’ll learn more about what caused their stocks to plummet and whether the damage is in sight.

Breaking the trillion dollar mark the wrong way

Amazon had the biggest move on Tuesday, falling more than 5.5%. The drop was enough to bring the e-commerce giant’s market capitalization back below the $1 trillion mark.

After the company’s earnings report last week, Amazon shares remain sensitive macroeconomic impacts. Many of those watching the business attributed today’s declines to signs that the labor market remains strong, as a healthy labor market puts upward pressure on wages which, in turn, could make more difficult for the Federal Reserve to control inflation in the coming months. .

It’s not like Amazon is doing nothing to try to restore confidence in its growth potential. In the past two days alone, the company has announced plans to break into the sports entertainment niche, taking on broadcast industry giants like ESPN and FS1. A new financing solution will make merchant cash advance services available, while the Amazon Music program will expand its catalog available to members of its Prime subscription service.

Yet an even bigger question is whether the company’s Amazon Web Services cloud business will experience a slowdown if the economy weakens. Investors have long assumed that the long-term trajectory of cloud computing is higher, but any evidence to the contrary could have a significant impact on why investors hold the stock.

Alphabet nears two-year low

Meanwhile, Alphabet shares were down more than 4%. The drop has taken the online search giant’s shares to levels not seen nearly two years ago, and investors are still struggling to gauge just how big the company’s top income-generating assets could be. damaged.

Alphabet financial report last week confirmed concerns about the status of the advertising industry. With a large portion of the company’s revenue coming from advertisements, both from its search engine and its YouTube video service, declining sales of key segments highlighted uncertainty surrounding advertisers’ ability to sustain their spending levels as economic conditions change.

Investors are hoping that other parts of the business will be able to pick up the slack over time. For example, the Google Cloud segment has seen much stronger growth than the rest of the business. Still, cloud-related revenue still only accounts for about a tenth of overall sales, so it will be some time before it impacts the overall Alphabet numbers that AWS has for Amazon.

Focus on the long term

Short-term stock market fluctuations are impossible to predict and you can never rule out further stock price gains. Eventually, however, Amazon and Alphabet’s long-term potential will be felt in its stock. For those with long-term horizons, the opportunity to add positions in these two giants of their respective industries could lead to impressive returns once the current economic uncertainty resolves.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Dan Caplinger has positions in Alphabet (A shares), Alphabet (C shares) and Amazon. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares) and Amazon. The Motley Fool has a disclosure policy.