Many Layoffs Already Announced In 2024, Why? AI That’s Why (SPX)

Many of the most successful enterprises are cutting

On January 12 Layoffs as reported in Fast Company: Discord: The instant messaging and communications platform told employees this week that it would lay off 17% originally reported in The Verge, Audible: Amazon’s (AMZN) audiobook company announced it would lay off 5% of its workforce. Alphabet (GOOGL): The search giant is laying off hundreds of people working on the company’s Google Assistant product, Semafor reported, which last year was made to look rather archaic with the rise of generative AI chatbots like ChatGPT. The company also laid off hundreds of workers on its knowledge and information product teams. Instagram: The Meta Platforms (META) -owned company is eliminating the roles of about 60 employees at its popular image-sharing app, reported Business Insider. The employees are all technical program managers. Instagram declined to comment. On January 12, Forbes reported: that Twitch, a live-streaming site owned by Amazon, announced plans to cut 35% of its staff, Amazon also announced plans to cut “several hundred” employees at its Prime Video and MGM Studios divisions. Video game software developer Unity Software (U) announced it will cut one-quarter of its staff. The job cutting is not just limited to the biggest and best technology companies, as The Wall Street Journal reported also on January 12 that BlackRock (BLK) The world’s largest asset manager said it would around 3% of its total workforce, as well as Citigroup (C). The bank said it would eliminate 20,000 jobs by the end of 2026. What is going on? I would say right off that all the companies in this summary of layoffs are quite successful. The exception would be C, which is being reorganized by the new CEO, who by all reports is making progress in restructuring the company. On Friday they reported higher earnings but lower revenue, they are vacating businesses I can’t manage to ding them on that right now all that said this isn’t about an endorsement of C. This is about a larger macroeconomic undercurrent that is running through the economy. I want to tie this data with this headline from the Friday before. On January 5, the Walls Street Journal reported that IT Employment Grew by Just 700 Jobs in 2023, Down From 267,000 in 2022.

My aim is not to induce panic, large corporations are generally not the job growth engines in America.

That doesn’t seem right at first blush because we focus on the Magnificent 7, and the rest of their cohort has been delivering high growth lately. In my opinion that isn’t how it is with traditional large companies. The way they boost earnings is through efficiencies and cutting costs. Incidentally, Mark Zuckerberg the founder and CEO of Meta Platforms (META) called 2023 the year of efficiency, and many of the other CEOs of the Tech Titans have followed suit that is part of the reason I am optimistic about the mega-cap tech and communications companies for earnings reports in the next several weeks.

Efficiency is not the only driver of lower demand for tech demand and other white-collar management and workers for that matter.

On the software side, LLM can be used to generate software, even before the emergence of Large Language Models ingesting code or in the parlance “trained” and taking those building blocks and constructing usable software for the enterprise. Before the rise of LLM there already were no-code cloud-based services, such as ServiceNow (NOW), and monday.com (MNDY). Those no-code systems are now fortified with LLM and ready to take all sorts of enterprise functions for all types of office workers. In addition, there is a new age of productivity-driven, not just LLM, but also RPA – Robotic Process Automation, most famously also all of the organization flattening tools like Slack, Team, Anaplan, Smartsheet, DocuSign (DOCU), and Zoom (ZM). I think it is no accident that large corporations witnessed so many workers socially distanced during the pandemic, forcing a flattening of organizations. The need for middle managers was demonstrably less, as workers proved that they could (for the most part) operate without someone hovering, and calling unnecessary meetings, Also LLM is taking over all sorts of interactive applications from Call Center services, to bookkeeping, and even automating contracts, but those functions are growing by leaps and bounds.

Will this hurt the economy?

No, this is just how a healthy economy works, as the great economist and political scientist Joseph Schumpeter in his landmark book Capitalism, Socialism, and Democracy, coined the term “creative destruction” — the idea that in a free-market economy, “the old way” of doing things is replaced by a newer, better process, or technology. Just think of all those skilled workers unleashed to create new businesses or moving to smaller more nimble companies that need technology expertise that in prior years was hard to get. Of those 20,000 people from C, there will be some that have transferable expertise to create new financial businesses that might fund underserved market niches or deliver better services to established ones. That said, too much of a good thing, in any form might not be all that good. Right now the way I see it, these reductions in workforce are not due to a slowing economy but an opportunity to run leaner, more responsive, and of course more profitable companies. There could be a problem, be it temporary if more corporations find that they need fewer clerical, middle management, and software development workers all at once, it could begin to affect overall job growth. That still won’t take down the economy, according to Schumpeter destruction comes from creation. Just think how cheaply a business can be started with all these new automation technologies. However, the employment numbers could tick lower soon, and that could lay the groundwork for a retreat from the current elevated level. This is the point of the information I have laid before you. While the current earnings season will serve to buoy the indexes, as I believe most of the S&P 500 companies reporting will exceed both revenue and earnings. Later in the quarter, the shedding of workers could call forth the “recessionistas” something I spoke about months ago. There is a faction of market commentators who have been predicting a recession only to be made to look foolish. They can’t wait to pick up on any new trend of data that could point to a marked slowdown in the economy. Even a slightly higher unemployment number, and any hint of deflation, could also show up as more workers get laid off. Their voices could be the catalyst to touch off a sizeable sell-off later this Quarter. Until then the market should go sideways or maybe a touch above. So far, my double-top chart which foretold a sideways trend has held all week,

Let’s zoom in a bit closer and talk about what happened this week, perhaps it will give us a hint of what happens this week. Well, the one month isn’t telling us much other than confirming that we are sidling along.

We did see attempts to break above the prior intraday highs on Wednesday, Thursday, and Friday, yet the index backed off sharply closing at 4783 for the week. I have to say that this double top may not hold if earnings turn out like I think they will. Though I think this coming week will be more of the same, a sideways market is great for stock pickers like us.

My Trades

With the Boeing (BA) news and watching the price action I got long for a trade. I am in at the 220 strike, it closed at 217, I will stay with this name a roll down further if I have to. My expiration is out to April and I am willing to roll out May and so on. Here is why, and it is totally by my gut, and not the charts, or a close reading of the facts, though I am very focused on that. I believe that David Calhoun the CEO of BA is going to resign or retire to spend more time with his family, take your pick. When that news goes out the stock will jump 20 points, and the new CEO will announce a deal with the FAA to overhaul their approval process. The new CEO will reconfirm the growth in 737 MAX output. I expect the BA stock price will continue to improve. once the change in the C-suite happens. Anyone who saw that interview on CNBC saw someone deeply affected by the accident. When the FAA strongly suggests he step aside, he won’t resist.

I am also long Apellis (APLS) Calls at the 65 strike. APLS is a conviction buy in our Microcap Biotech 30 list, and I am an investor in this name as well.

Good luck on Tuesday!