Large Layoffs Continue
What is it?
Coming into this year, many companies were laying off thousands of employees. That trend has continued so far in January, “putting the state of the economy in question.”*
“The trend of large-scale downsizing goes back several months as Facebook parent company Meta said in November that it would cut more than 11,000 employees and put a freeze on hiring in the first quarter of 2023.”*
Why does it matter?
The effects have broad implications, especially for technology, media, and financial companies. There have been hiring freezes or layoffs at Microsoft, Amazon, Google, Salesforce, Coinbase, Twitter, Goldman Sachs, Morgan Stanley, and Bank of America among others.*
“In the media sector, the Washington Post’s publisher told employees last month that there would be a single-digit percentage of cuts, which the New York Times reported is expected in early 2023. CNN and BuzzFeed also announced layoffs in December, and last week it was reported that NBC News and MSNBC would be making cuts as well.”*
This matters not only to the people being laid off, but to the market as a whole. The Federal reserve is still raising interest rates to bring inflation back to more sustainable levels. If they see the job market struggling, they could be less likely to keep interest rates high. Those interest rates impact market prices which we take into account as the Fed updates us on their monetary policy.
Debt Ceiling Doom
What is it?
The $31.38 billion debt limit was reached by the federal government.* Because of that, the Treasury Department had to step in to avoid a debt default*
“‘Failure to meet the government’s obligations would cause irreparable harm to the U.S. economy, the livelihoods of all Americans and global financial stability,’ U.S. Treasury Secretary Janet Yellen wrote. Yellen said Treasury’s extraordinary measures will likely be exhausted by early June, putting pressure on lawmakers to find a debt ceiling resolution. The U.S. famously lost its AAA credit rating by S&P in early August 2011 amid a contentious debt ceiling debate that almost triggered a government shutdown.”**
Why does it matter?
“The S&P 500 (^GSPC) lost about 12% from early July 2011 through the end of August as investors voiced their concern on the country’s debt situation. Roubini says officials need to avoid a similar situation at all costs, especially as the U.S. economy contends with sluggish economic growth and stubbornly high inflation.”**
If the government did default on its debt, many investors and lenders would be hurt financially. Because of how much things would change if the government defaulted on the debt, we believe that congress will raise the debt ceiling when the time comes to do so.
Other articles we found interesting this week:
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Our process attempts to identify trends and momentum in the financial markets. With that information, we align our clients’ portfolio accordingly in the hope to help our clients accomplish their life goals while attempting to lower the risk of a large drop in their portfolio.
*Ronn Blitzer. “These major companies are laying off workers at a huge rate”. 1/19/2023. Fox Business. https://www.foxbusiness.com/economy/these-major-companies-laying-off-workers-huge-rate
**Brian Sozzi. “Roubini: U.S. debt ceiling fight is a potential ‘financial catastrophe’”. 1/19/2023. Yahoo Finance. https://finance.yahoo.com/news/roubini-us-debt-ceiling-fight-is-a-potential-financial-catastrophe-105938585.html
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