It’s commonly held wisdom on Wall Street that there’s nothing traders like more than a big round of job cuts.
Research from Bank of America tosses that axiom into the trash can.
Strategists at Bank of America led by Savita Subramanian studied earnings transcripts of companies that used the word “layoff.” Relative to the industry group they’re in, the more they use the word, the worse the return.
A company using the word “layoff” 10 times during a call saw a daily underperformance of 1.7% relative to the industry the company is in. The dropoff was most noticeable on the seventh mention.
That said, Wall Street does reward labor-light companies. The least labor-intensive companies outperform the most labor-intensive ones, based on employees-to-sales ratios, Bank of America found.
Layoff mentions have been picking up recently, led in particular by the financials sector. But that’s mostly due to seasonality, and the magnitude is much smaller than last year.
“The earnings upcycle that we expect in 2024 suggests that the peak corporate layoff cycle is likely behind us. The job market remains robust,” the strategists said.
The S&P 500
SPX
has gained 21% over the last 52 weeks, including ending Friday at a record high.
