For tech companies and stockholders, laying off thousands of employees has translated into profits as stocks surge.
Following recession fears, close to 60,000 employees lost their jobs in January 2023, in one of the largest corporate layoffs in US history. Companies like Google, Amazon, Microsoft, Salesforce, and Goldman Sachs have been on a firing spree, giving the pink slip to thousands of employees.
Alphabet, the parent company of Google, announced last Friday that they have removed 12,000 employees. Surprisingly, the majority of the employees who are now jobless were the ones who had received ‘high-performance ratings,’ with some managers earning anywhere between $500K to $1 million per year.
A thing to note is that the Jeff Dean-led Google Brain division that delves into artificial intelligence, research, and deep machine learning has been relatively unaffected, clearly indicating where the company’s interests lie for the near future.
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Microsoft announced an additional cut of 10,000 employees this week following the announcement that they were cutting 5 percent of its workforce as a part of a ‘realignment strategy.’
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Amazon has laid off workers in the devices and services division. The majority of job cuts affected teams associated with Amazon Alexa and Echo smart home devices and Prime Air drone delivery projects at multiple sites.
More Layoffs Across Industries
San Francisco-based software company, Salesforce, stated on January 4 that it would ask 7,900 employees to leave to counter ‘a challenging economic climate.’
Banking giant, Goldman Sachs, has announced 3,200 job cuts.
Capital One, according to reports, is planning to lay off 1,100 employees, especially in tech positions, but they are open to adjusting them to other positions in the company.
Bed Bath & Beyond, the nation’s favorite home goods store, has started to lay off employees as well. The stock is up 153% since bottoming out earlier in January, as it announced closure of hundreds of stores and a looming bankruptcy filing in its latest earnings report.
Other Companies like online furniture retailer Wayfair, student loan company Nelnet, and supply-chain management company, Flexport, are cutting a sizable part of their workforce.
Several major cryptocurrency layoffs have occurred this month as employers worry about a “crypto winter” and investor speculation after the collapse of Sam Bankman-Fried’s crypto exchange FTX.
To “weather downturns” in the crypto market, Coinbase reduced 25% of its employment (950 employees) earlier this month. Three days later, Crypto.com CEO Kris Marszalek announced plans to eliminate 20% of its staff (500 employees) due to “unforeseeable industry events” like the FTX crash, which “significantly eroded faith in the industry.”
Are the Layoffs Related to Recession Concerns or a Short-cut To Increase Stock Price?
How the layoff affects the stock price depends on whether it’s a sign of trouble or a way to improve the company. If investors think that the layoff is a sign of trouble, the price will go down. But the price will increase if investors believe the company is getting rid of extra capacity or changing its business model for the best possible returns.
Wayfair and Alphabet, which announced job cuts on Friday, saw their stocks rise 11% to $46.79 and almost 10% to $98.02, respectively. It is believed that corporate shares will continue to rise as companies cut costs to avoid a recession.
Spotify stock rose by 5% on Monday after CEO Daniel Ek stated the firm would lose 6% of employees, or 600 workers, to control costs “in a tough economic environment,” admitting he was “over-ambitious” in driving up costs after robust growth during the pandemic.
Wedbush analyst Daniel Ives said tech sector headcount cuts are “the first major step” toward strengthening the crop of recently struggling stocks, noting that Meta shares have soared about 50% since the firm revealed in November last year that it would slash more than 11,000 jobs. He had also predicted that tech stocks will rise 20% this year following the job cuts and corporate restructuring.
Most of the time, job cuts are perceived as good news by the stock market.
When the company cuts jobs, it translates into lower costs and a move toward a more efficient business model. That’s usually a good sign from an economic standpoint. Even though layoffs hurt people’s finances, investors tend to like them because they imply lower costs and more profits.
More Layoffs To Come?
In light of the fact that major layoff announcements are likely to continue, economists at Bank of America told their customers on Tuesday that they anticipate the unemployment rate will rise from its current level of 3.5% to 5.1%. This would imply that more than 2.5 million people in the United States could lose their jobs.
Will This Stop Inflation and Rising Interest Rates?
Last year, technology stocks crashed as the Federal Reserve started to raise interest rates to slow down the economy and control inflation. This wiped out a lot of big stock gains made during the pandemic when the government tried to boost the economy.
After going up 22% in 2021, the tech-heavy Nasdaq fell 33% in 2022, which was a much bigger drop than the S&P 500’s 19% drop.
As the economy was weak, big companies got rid of more than 100,000 jobs last year, and the layoffs have only gotten worse in the last few weeks. “Massive layoff announcements will stop wage pressures from going up,” says Oanda-analyst Edward Moya, adding that this trend should bring inflation back to the Fed’s target by the end of the year. This could lead to the Fed putting an end to interest rate increases.
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