Big Tech’s Job Cuts Spur Rallies Even as an Economic Slowdown Looms – Yahoo Finance

(Bloomberg) — Massive job cuts in Silicon Valley are bringing some relief to investors after a year-long stock selloff, as companies indicate they’re focused on bolstering their profits heading into a key earnings reporting season.
Most Read from Bloomberg
Hindenburg’s Short Sell Call Shaves $12 Billion Off Adani Stocks
US Confronts China Over Companies’ Ties to Russia War Effort
Tech-Led Slide Fades; Tesla Whipsaws on Earnings: Markets Wrap
Josh Kushner Is Richer Than Trump After Billionaires Back His Firm
US and Germany Set to Send Tanks to Ukraine, Breaking Deadlock
Big US tech companies including Alphabet Inc. and Salesforce Inc. experienced, on average, a 5.6% bump in their stock price this month in the session following an announcement of job cuts, according to data compiled by Bloomberg.
“This is a decade overdue, but I am very glad to see these encouraging steps toward focusing on margins,” said Gene Munster, co-founder and managing partner at Deepwater Asset Management, who expects an additional 15% to 20% headcount reduction in Big Tech beyond what has already been announced.
Looking past the short-term pop in stock prices, the risk is that the job cuts won’t be enough to offset the drop in earnings from a weakening economy. For now, investors broadly are optimistic that that won’t be the case: The Nasdaq 100 Index has risen 8.7% from its bear-market low in December, outpacing the S&P 500’s 4.8% increase.
Munster owns shares of Meta Platforms Inc., which announced layoffs last year, as well as Alphabet and Apple Inc. He said he wants to see companies give cautious outlooks when they report earnings in order to be confident that a bottom in stock prices has been put in place.
“Some companies have gotten too much credit for modest cost reductions, which means we could be due for a pullback if numbers haven’t been fully de-risked,” he said.
Easy Money
In the last bull market, ultra low interest rates made it easy for companies to borrow money and fuel growth at any cost. Sales surged and margins were squeezed as companies invested heavily in expanding their footprints and headcount.
Fast forward to 2022, when easy money evaporated as the Federal Reserve tightened monetary policy to control rising inflation. With the threat of a looming economic slowdown or recession, investors began clamoring for a heightened focus on maintaining profits and margins to offset weaker revenue growth. Activist investors have joined in to acquire stakes in large companies like Salesforce and Walt Disney Co., and could pressure them to cut costs.
Of the biggest technology and internet companies, which together employed more than 2.2 million people as of their last fiscal year, Apple is the only one that hasn’t announced large-scale job cuts; it instead paused hiring for many jobs outside of research and development.
“With the exception of Apple, which didn’t over-hire, a lot of big tech companies bit off more than they could chew, and right now they’re in the process of reversing their frothy years,” said Yelena Maleyev, an economist at KPMG.
Microsoft Cloud
Analysts predict that fourth-quarter tech earnings will show the steepest drop since 2016. Microsoft Corp., which kicked off the industry’s reporting late Tuesday, said revenue growth in its Azure cloud-computing business will decelerate this quarter and warned of a further slowdown in corporate software sales. The company said last week it’s cutting 10,000 jobs.
Microsoft is the biggest drag on key US benchmarks on Wednesday after it delivered a forecast that flagged several headwinds for the technology sector.
The combination of lower costs along with durable fundamentals could set tech up for gains when the economy eventually picks up steam, according to David Waddell, CEO and chief investment strategist at Waddell & Associates.
“Cost cuts in 2023 queue up exponential profit expansions in 2024,” he said. “The more costs they cut today into a shallow recession, the more profits they earn in the subsequent expansion.”
He suggested that the market may need to consolidate its recent gains, “but there is no need to revisit the October lows.”
Tech Chart of the Day
Top Tech Stories
Microsoft said revenue growth in its Azure cloud-computing business will decelerate in the current period and warned of a further slowdown in corporate software sales, fueling concern about a steeper decline in demand for the products that have driven its momentum in recent years.
Microsoft has resolved widespread problems with its online services, including Outlook and Teams, that it attributed to networking issues. Customers reported difficulties across multiple regions starting at 7:05 a.m. Wednesday in London, the company said.
ASML Holding NV forecast better-than-expected first-quarter sales due to strong demand for its advanced chip-making machines, even as export controls threaten growth.
Texas Instruments Inc., one of the world’s largest chipmakers, suffered its first sales decline since 2020 and gave a tepid forecast for the current quarter, hit by an industry slump.
Sea Ltd. is considering a sale of Vancouver-based indie developer Phoenix Labs as the Southeast Asian internet giant slashes costs and focuses on its core business, according to people familiar with the matter.
Hundreds of Amazon fulfillment center workers in the UK plan to strike on Wednesday as part of unprecedented industrial action by the company’s British employees.
–With assistance from Maxwell Zeff.
(Updates to market open.)
Most Read from Bloomberg Businessweek
How to Be 18 Years Old Again for Only $2 Million a Year
Wind Turbines Taller Than the Statue of Liberty Are Falling Over
Elon Musk’s Epic Quest for LOLs Is Only Hurting Tesla
Is Europe Sleepwalking Into Another War?
Is a US Recession Near? Making the Call Is Trickier Than Ever
©2023 Bloomberg L.P.
Related Quotes
The long-awaited change gets a timeline.
It’s no surprise that films that entirely bypass the movie theater are on the shortlist for the prestigious Best Picture award.
Yahoo Finance's Ines Ferré breaks down trending tickers in early afternoon trading.
More than 59,000 global technology sector employees have been laid off in the first few weeks of 2023, according to data compiled by the website Layoffs.fyi. The website’s tally of global tech layoffs in 2023 has more than doubled since last week, when it recorded just over 25,000 layoffs. The data suggest 2023 is on pace to surpass 2022 for global tech redundancies, with 200 tech companies laying off 59, 448 employees in the first few weeks of the year.
Apple Inc (NASDAQ: AAPL) began hiring employees for a retail push into Malaysia. Apple's Malaysia job listings suggest the company seeks store managers, technical specialists and support staff, business salespeople, and operations experts, Bloomberg reports. The positions will be for Apple's retail stores, not third-party reseller locations that have long operated in Malaysia. Apple is likely to start in Kuala Lumpur, the nation's capital. The hiring will support Apple's presence in Southeast As
Students in Delhi were detained and power cut to prevent screenings of a film that has riled India's PM.
Change is not for the faint of heart, write Gabriella Rosen Kellerman and Martin E.P. Seligman.
(Bloomberg) — The Bank of Canada raised interest rates for an eighth consecutive and potentially final time, saying it expects to move to the sidelines and assess the impact of its rapid tightening on the economy. Most Read from BloombergHindenburg’s Short Sell Call Shaves $12 Billion Off Adani StocksUS Confronts China Over Companies’ Ties to Russia War EffortTech-Led Slide Fades; Tesla Whipsaws on Earnings: Markets WrapJosh Kushner Is Richer Than Trump After Billionaires Back His FirmIBM to Cu
Alibaba stock has rallied sharply amid renewed signs of accumulation as investors bet on better times ahead for the Chinese juggernaut.
Does the January share price for Apple Inc. ( NASDAQ:AAPL ) reflect what it's really worth? Today, we will estimate the…
What wedding dress will you wear? FOX 5’s Claire Anderson checks out the options at Lovely Bride DC!
(Bloomberg) — The three most-cited debt-rating firms are all expecting Congress ultimately to raise the federal debt ceiling — despite a deep partisan divide — though they’re split on the implications of any move to prioritize payments on Treasuries in the event the debate goes into extra time.Most Read from BloombergHindenburg’s Short Sell Call Shaves $12 Billion Off Adani StocksUS Confronts China Over Companies’ Ties to Russia War EffortTech-Led Slide Fades; Tesla Whipsaws on Earnings: Market
Heavy snow covered parts of Massachusetts on Monday, January 23, prompting the National Weather Service to warn of hazardous travel conditions.Video shows snow blanketing the grounds of Blue Hill Observatory in Milton.As of Monday night, the National Weather Service said that snowfall had “wrapped up” for much of the region, and would come to a halt by 11 pm. Credit: Blue Hill Observatory via Storyful
(Bloomberg) — Wall Street saw some buyer fatigue after a solid equity rally, with investors scouring a batch of earnings for clues on the outlook for Corporate America amid mounting fears about a recession.Most Read from BloombergHindenburg’s Short Sell Call Shaves $12 Billion Off Adani StocksUS Confronts China Over Companies’ Ties to Russia War EffortUS and Germany Set to Send Tanks to Ukraine, Breaking DeadlockJosh Kushner Is Richer Than Trump After Billionaires Back His FirmDoomsday Clock Mo
Yahoo Finance's Jared Blikre breaks down fourth-quarter earnings for Tesla.
Yahoo Finance’s Ines Ferre breaks down fourth-quarter earnings for IBM.
If the sky-high forward dividend yield of 8.6% is making you consider a purchase of Medical Properties Trust (NYSE: MPW) stock, you aren't alone. The future of this hospital real estate business seems quite certain; it'll keep doing what has worked in the past, namely buying and then renting out healthcare spaces.
Yahoo Finance's Dave Briggs breaks down why Chevron stock is moving higher in extended trading hours.
Millennials have given up on stocks. Is it time to follow suit?
The Biden administration is poised to send a significant number of Abrams M1 tanks to Ukraine, according to The Wall Street Journal.

source

Leave a Comment

Your email address will not be published.