In 2018, the Nasdaq Composite fell 4 percent amid a volatile year-end that saw many investors sell off tech stocks. While this went on, online retail giant Amazon loaded the boat on safe-haven government bonds.
Amazon increased its government bond holdings by $6.8 billion to end with a total of $11.7 billion based on the company’s latest annual report. It wasn’t an unusual move, but followed the trend of investor flight to safe-havens during the bout of volatility in the fourth quarter of 2018.
“Any time there is uncertainty in the market, putting excess cash into ‘risk-free’ investments seems like a prudent business decision,” said W. Brooke Elliott, an accounting professor at the University of Illinois at Urbana-Champaign.
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The Federal Reserve didn’t show much dynamism in 2018 with respect to monetary policy, obstinately sticking with a rate-hiking measure with four increases in the federal funds rate. That appears to have changed given the current economic landscape, and especially in the capital markets as Fed Chair Jerome Powell is now preaching patience and adaptability.
Nonetheless, as the Fed was instituting four rate hikes in 2018, Amazon was quick to add more government bonds to their portfolio to take advantage of rate increases. During the fourth and final rate hike of 2018, the Fed forecasted two more rate hikes were in store for 2019.
“The change toward U.S. government securities is more a matter of benefiting from attractive interest rates,” said Daniel Aobdia, an accounting professor at Northwestern University’s Kellogg School of Management.
According to Aobdia, Amazon’s move to government bonds speaks to the prescience of the online retail giant and where the economy may be heading.
“Amazon has become so large that they must have some good insights about where the economy is headed by looking at how their different businesses are doing,” Aobdia said. “Overall, expectations of increased interest rates would be consistent with a more robust economy.”
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