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By Subrat Patnaik and Ryan Vlastelica | 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.

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.

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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.”

–With assistance from Maxwell Zeff.

More stories like this are available on bloomberg.com

©2023 Bloomberg L.P.

News Source: mercurynews.com

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Next News:

Jill Duggar shows support for sister Jinger’s tell-all book before big release amid feud with parents Jim Bob & Michelle

JILL Duggar has sided with her sister by getting Counting On fans counting down the days until Jinger Duggar's new book.

The ex-TLC star's tell-all is aimed at exposing her parents, Jim Bob and Michelle's, extreme religious beliefs.

5Jill Duggar showed off her new blonde hair and nose ring while holding up a copy of Jinger's bookCredit: Instagram/ jillmdillard 5Jinger Duggar's promising tell-all is aimed at exposing secrets that weren't filmed in their reality TV daysCredit: YouTube/Jinger & Jeremy Vuolo

Jill, 31, flashed a smile while holding up a hard copy of Jinger's book which she'll get to read before fans do.

"Look what came in!" Jill told the camera in her Instagram video on Saturday holding up a hard copy of Jinger's book.

The 29-year-old's tell-all memoir, Becoming Free Indeed, is out on January 31.

"Thanks Ginge for sending me a copy of Becoming Free Indeed!" Jill exclaimed doing a little free promo for her sis.

Read more on the DuggarsDUGGAR DRAMA Two key Duggar sisters ditch family snow day gathering amid feudSNOW WAY Duggar fans beg Jill to get son Samuel, 5, a coat as kids play in the snow

Jill looked great with her new nose ring, blonde hair and tie-dye tee after recently closing the book on any rumors she and Jinger aren't close since they now live far away from each other.

'PROUD OF YOU SIS!'

Last week, the Counting On alum posted on Instagram about a new interview she did with People, Jill was the only one of her 18 siblings to leave a comment.

“Proud of you [and Jer as I’m sure you continue to support each other] as you have processed so much, I’m sure, and yet continued to cling to each other and Jesus!” she wrote.

"Walking 'the straight and narrow' as God leads you is harder than walking completely one way or another!"

Most read in EntertainmentSCANDALOUS Kourtney Kardashian flashes her bare butt in raunchy PDA pics with Travis BarkerANCHORS AWAY GMA's TJ Holmes and Amy Robach officially out at ABC after affair scandal'THEY'RE OUT' GMA's TJ Holmes and Amy Robach 'both out at ABC after affair scandal'BAD MORNING? GMA's Robin missing from show after throwing jabs at Amy & TJ over 'affair'

However, some fans were left scratching their heads over Jill’s comment.

Many questioned whether the two still have a close relationship given that Jinger now lives in California while Jill is in Oklahoma.

But Jill appeared to clap back at the estrangement speculation with a new comment left under Jinger’s latest post.

The latter was again promoting her new book and shared a video of herself getting her hair and makeup done for a photoshoot.

“Proud of you sis!” wrote Jill in response, adding a heart emoji.

'HARMFUL' UPBRINGING

The sixth child of Jim Bob and Michelle, Jinger left the church in 2017, and has since slammed its teachings as “cult-like.”

Jinger’s upcoming book is expected to shed new light on the sisters’ upbringing.

Speaking to People, the author said: “The teaching I grew up under was harmful, it was damaging, and there are lasting effects.”

Jinger and her 18 siblings were raised under the teachings of the Institute in Basic Life Principles, a Christian organization established by disgraced minister Bill Gothard.

Both Jill and Jinger have distanced themselves from their parents Jim Bob and Michelle in recent years.

The sisters have defied their father’s dress code, which forbids women from wearing short skirts or jeans, on many occasions.

Her parents have largely supported their controversial son Josh Duggar throughout his prison sentencing for child pornography.

5Jinger Duggar's tell-all against her parents is out January 31stCredit: Thomas Nelson 5Jill has sided with her sister by flashing a copy and has 3 children with Derrick DillardCredit: Instagram/ Jill Duggar 5Jim Bob and Michelle Duggar raised their 19 children in a strict Christian householdCredit: Instagram Topics
  • Counting On
  • Jinger Duggar
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