After layoffs, tech stocks boom
Tech layoffs are way up — and so are tech stocks. Two charts tell this story.
The big picture: The tech industry's layoffs began last year and have kept up a relentless stream of bleak announcements — in some companies' cases, like Meta's, coming in multiple waves.
- The industry, which had overhired during the pandemic, started trimming its workforce last year, just as the Federal Reserve started raising interest rates to cool the inflation-rattled U.S. economy.
Between the lines: Layoffs are often understood as an indicator of incipient recession, and stock prices typically fall in step with both of those trends.
- That's exactly what happened in 2022 — the worst year for tech stocks since the great dotcom bust more than 20 years ago.
Yes, but: The new year brought a turnaround to tech stock prices, as this second chart lays out (courtesy Axios Markets' Matt Phillips).
What's happening: Tech stocks have always been volatile, and it's never a good bet to blame their fluctuations on any single cause. Here are some possible explanations for the resurgence, more than one of which might apply:
- Wall Street is rewarding tech for all those layoffs. Investors applaud "discipline," and thinner payrolls could mean more profits to come.
- No, it's the wave of enthusiasm in the industry for ChatGPT and generative AI is driving the market up. Many observers are framing the new generation of AI as the biggest leap forward in tech since the iPhone's 2007 debut.
- Or maybe the market just oversold tech in 2022 and it's correcting course now.
- Some of these companies are also spending some of their cash hoards buying back shares, which can help lift share prices.
- Alternately, this resurgence is an illusory "dead cat bounce." It will fizzle out as the pain of higher interest rates continues.
However you interpret the numbers, the tech-stock rebound has raised spirits in Silicon Valley and provided some hope that the industry's toughest sledding may be behind it.
The bottom line: Some discouraging reports continue — including sagging ad growth and unsold Teslas — but tech's leaders are beginning to see a turnaround. We'll know they're really feeling good when they start hiring in droves again.