That’s about to change.
The split, which takes effect Monday, will be a 20-for-1 transaction, meaning that if you owned one share of Amazon, you’ll wind up with 20 shares after the split that each cost about 1/20th of the previous price. So the value of your investment does not change, and one Amazon share that traded for just under $2,450 would become 20 shares that each cost a little more than $120.
But here’s the thing: Even though a stock split may make it seem like a share is now more affordable, it doesn’t actually make the stock any cheaper when looking at valuation measures like price-to-earnings or price-to-sales ratios.
That’s why making the share prices of quadruple-digit stocks more accessible is a “smart move,” according to Michael Mullaney, director of global markets research for Boston Partners. This should allow more investors to buy so-called round lots (100 shares) of a company instead of just a handful of shares.
“Retail investor trading has increased dramatically over the past year and a half and has become very important again. It’s not just big institutions and hedge funds,” Mullaney said. “But it’s impossible for an average investor to buy 100 shares of some of these stocks at these prices.”
That prestigious group of 30 leading American companies is a price weighted instead of a market cap weighted index. So at their current share prices, Amazon and Alphabet could not be added to the Dow without having an outsized impact on the daily moves of the index.
So the looming splits for Amazon and Alphabet could pave the way for those tech titans to join Apple and Microsoft, the only two companies in the US with a higher market value than Amazon and Alphabet, in the Dow.
Inflation finally peaking?
Big tech stocks aren’t the only things with inflated prices. Consumers and businesses have been dealing with rising prices of commodities and services for the better part of the past year. Investors will get another look at just how high prices have surged when the US government releases its latest consumer price index (CPI) figures on Friday.
Even so, it may take some time for consumer prices to get to a level that’s more comfortable for shoppers … and the Fed. The Fed ideally would like to see CPI slow to about a 3% to 3.5% clip, if not lower, before declaring
a victory against inflation.
“The good news is that inflation numbers should start to come down,” said Ken Shinoda, a portfolio manager with DoubleLine. “The question is will they come down enough?”
Monday: Amazon stock split. Apple’s Worldwide Developers Conference begins.
Friday: Bank of Russia meeting on interest rates; US consumer price index; University of Michigan US consumer sentiment