You're fired. Stock rises. Wall Street loves layoffsOctober 1, 2013: 1:23 PM ET
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
Merck announced 8,500 new job cuts today. That's on top of previously disclosed plans to lay off 7,500 workers. Shares of Merck rose more than 2% on the news.
But here's the crazy thing. It's not as if Merck (MRK) had been struggling before Tuesday's job cut announcement. The stock is now up nearly 20% so far in 2013 and shares are just 3% below their 52-week high.
Merck is not alone. Several companies that have been posting decent earnings increases are also getting rid of workers. And investors keep cheering. Maybe Molly Ringwald needs to star in a movie where she's a CEO who just fired 20% of her staff. Pretty in Pink Slips.
It's a sad sign that many big firms still feel that demand isn't strong enough to justify adding employees -- even though the global economy is supposedly recovering. Companies are content to do more with less.
And with Wall Street celebrating the cost cutting, is it any surprise companies are eager to send out more pink slips? Hey, profit margins don't go up when sales slump, right?
German industrial conglomerate Siemens (SI) recently said it was cutting 15,000 employees. Its stock is up more than 10% year-to-date and nearly 20% in the past twelve months.
Cisco Systems (CSCO) disclosed back in August it was eliminating 4,000 jobs. Cisco's stock is up 18% this year. And get this! The company revealed on Monday that it was giving CEO John Chambers a massive raise, $15.2 million in stock awards and a $4.7 million cash bonus.
Apparently, you need to be properly compensated for all the hard work it takes to swing an ax.
Want some other examples of job killers that Wall Street loves?
Hewlett-Packard (HPQ) hasn't been selling a lot more PCs and printers lately. But CEO Meg Whitman does have an ambitious plan to slash 29,000 jobs by the end of the company's next fiscal year. Shares are up nearly 50% this year.
But wait. There's more!
Big banks are all making adjustments to their mortgage divisions. Citigroup (C), Bank of America (BAC) and Wells Fargo (WFC) have each recently disclosed plans to eliminate thousands of workers in their home loan units. A big drop in refinancing activity due to rising long-term interest rates is to blame.
Still, it's not as if the banks themselves are struggling. Shares of all three companies are up about 20% in 2013.
But BlackBerry is the notable exception because its moves aren't being viewed by Wall Street as some sort of corporate "rightsizing" in the face of a sluggish global economy. It's potentially a last gasp move by a desperate and seriously wounded company.
Now don't get me wrong. I'm not suggesting that Fortune 500 companies go out and spend lavishly to hire new employees when demand isn't there. But Wall Street encourages companies to keep slashing costs because investors like the higher earnings that come along with fewer workers.
That can't last forever. Many people (including members of the Federal Reserve) like to harp on how a stronger stock market is good for the economy because of the so-called wealth effect. But that wealth is increasingly concentrated in the hands of just a few: the richest of the rich.
The real economy can't move into high gear if more people lose their jobs and pull back on spending. And if consumer spending remains stagnant, companies will have no incentive to hire more. In fact, they may keep firing people just to preserve profits.
That may lead to even higher stock prices. And that's great news ... for those who can actually afford to buy stocks and the executives who receive ginormous bonuses for handing out pink slips.
And I haven't even mentioned how there's tens of thousands of hard-working, middle-class Americans who are essentially now unemployed until the government shutdown gets resolved.
Hip hip hooray!