Mass layoffs at Alphabet fuel $50 billion market rally – and analysts expect more job cuts to boost tech stocks

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Topline

Alphabet, Google’s parent company, and online retailer Wayfair were the latest tech stocks Friday to rebound after massive layoff announcements to help contain costs in the run-up to a possible recession — a phenomenon that analysts predict will continue throughout the year, market values ​​said. will boost but possibly millions of people into unemployment.

Main facts

Ahead of Friday’s earnings, Wayfair shares skyrocketed more than 22% after the company announced it will cut 10% of its global workforce, amounting to some 1,750 employees, “to be more agile” amid reduced sales, said CEO Niraj Shah, who has lost his billionaire status as shares plunged 80% last year.

Shares of Alphabet also posted gains, rising nearly 5% and adding more than $50 billion in market value, following the tech giant’s decision to lay off 12,000 employees Friday, with CEO Sundar Pichai telling employees the company had overspent. after “dramatic growth” during the pandemic and “hired for a different economic reality than the one [faced]

Today.”

In an email Friday, Wedbush analyst Daniel Ives said he expects more tech layoffs to be a “major theme” throughout earnings season as Silicon Valley turns to cost-cutting to prepare for a potential recession after a decade of “hypergrowth”. which drove many companies to overspend.

Ives went on to say that the tech sector’s workforce cuts are “the first big step” towards stabilizing the recently struggling stock, noting that shares of Meta are up about 50% since the company announced in November that it would cut more than 11,000. jobs, and predicting technology stocks as a whole will rise about 20% this year.

Oanda analyst Edward Moya expects the theme to spread across other sectors throughout the year, with banking giant Capital One on Friday becoming one of the first non-tech companies to announce mass layoffs, reportedly cutting 1,100 tech positions and stocks rising more than Increased 4% on Friday.

Other stocks that rallied after recent layoff announcements include Amazon, which is up 15% since announcing it would begin cutting jobs earlier this month, and Coinbase, which is up nearly 40% since the Jan. 10 layoffs .

Key background

Technology stocks collapsed last year as Federal Reserve rate hikes began to slow the economy in an effort to curb inflation, effectively reversing a slew of excessive stock gains backed by government stimulus efforts during the pandemic. After rising 22% in 2021, the tech-heavy Nasdaq collapsed 33% in 2022, much worse than the S&P 500’s 19% drop. Amid the weakness, major companies cut more than 100,000 jobs last year, with layoffs only increasing in recent weeks. “Mass layoffs will prevent wage pressures from rising,” explains Moya, noting that the trend should push inflation back toward the Fed’s target by year-end.​

Surprising fact

Despite their gains on Friday, Wayfair shares are still down as much as 86% from a 2021 all-time high. Meta shares, too, are still down about 64% from 2021 all-time highs.

What to watch out for

Earnings season will drag on into the month ahead, with a slew of tech companies, including Tesla, Microsoft and IBM, expected to report next week.

tangent

With major layoffs expected to be announced, Bank of America economists told clients on Tuesday they expect the unemployment rate to rise from its current level of 3.5% to 5.1%, suggesting more than 2.5 million Americans could lose their jobs.

Read further

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