We recently wrote that there were more Tech-related layoffs in Q4 2022 than during the COVID trough in Q2 2020. Approximately 23% more Tech-related layoffs (73,899) occurred during Q4 2022 versus the COVID trough (60,141), in Q2 2020. There is plenty more room to cut.
- One thing is for sure – there is more room to cut. Given where the unemployment rate stands and knowing Technology company culture – especially in the Bay Area – most of these companies are overstaffed and all too happy to operate with weak margins or negative cash flows. Without a Fed Put, the Bay Area culture of not turning a profit in order to pursue growth at all costs will inevitably fade away.
- The $60,000 question is will the Fed eventually return to a QE-driven monetary policy? I can live with the Fed taking its Fed Funds rate back down to 2.5% or so. However, returning to a QE-based monetary policy will invite moral hazard, asset inflation and a weak Dollar back to the markets in abundance.
- More layoffs to come. Prepare for more Tech layoffs to be announced just prior to or in concert with earnings later this month and next. Q1 2023 could get ugly.
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