The Buzz

All markets and investing news all the time

Investors grin as companies ax jobs

January 9, 2014: 1:59 PM ET
Investors love it when companies announce job cuts. It's sad. And it has to stop.

Investors love it when companies announce layoffs. It's sad. And it has to stop.

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.

Warning. I think I've reached my Peter Finch from "Network" moment. I'm "mad as hell" about how Wall Street keeps celebrating job cuts as if they are a good thing for the markets and economy. I'm not sure I can take it anymore. (If you want a special video treat, be sure to read all the way to the bottom of this column.)

Shares of Macy's (M) rose more than 8% and hit a record high Thursday, even though the company announced it was closing some stores and laying off 2,500 workers.

But the mystifying thing about this news is that Macy's also reported strong sales for the holidays and a rosy outlook for 2014.

So if things are going so well, why is there a need to let that many employees go?

Macy's isn't the only company that's been rewarded for handing out pink slips. Regional bank First Niagara (FNFG) said Wednesday that it was cutting 170 jobs. Shares rose 2%, while the broader market and most bank stocks were flat.

Related: Investors bet big on big bank stocks

To be fair, First Niagara said that the affected employees would be able to apply for other positions at the bank and that there would actually be 250 new openings.

But a layoff is still a layoff. And you can't help but grimace when you see a headline like this for the press release that explained the restructuring

First Niagara Tailoring Retail Banking Experience to Match Evolving Customer Preferences

In other words, the bank didn't want to cut jobs. Consumers made them do it.

Now I realize that businesses always have to make tough decisions about staffing levels. Sometimes demand isn't strong enough to justify a company's headcount.

Related: The economy may not feel as good as it looks

But isn't the economy supposedly improving? Aren't stocks at record highs? What's it going to take for Corporate America to finally realize that the only road to a lasting (and more robust) recovery is to have as many people working (and therefore having the money to spend) as possible?

I may not have won a Nobel prize for economics but I'm pretty confident that this mathematical equation is valid.

Lower unemployment rate = higher gross domestic product growth

Fortunately, the pace of mass layoffs is decreasing. According to the latest report from outplacement firm Challenger, Gray & Christmas, the number of planned job cuts announced in December was the lowest since June 2000. And for the full year, 2013 had the least number of layoffs since 1997.

But as Macy's and First Niagara show, some companies continue to trim jobs.

That's a problem given that there are still millions of unemployed workers in America who have not yet given up the search for a job. And many of them are now faced with the possibility of losing jobless benefits.

Related: 'I just want a job'

If companies begin to hire more again instead of cutting jobs, doesn't it stand to reason that the newly employed will be able to boost GDP by spending and investing?

It's a win-win for Corporate America and Main Street when sales and profits are both going up. That's how you create a self-sustaining recovery. Enough with trying to juice earnings and market returns through cost cutting.

I've written about this topic several times in the Buzz, most recently in October. (See "You're fired. Stock rises. Wall Street loves layoffs")

At that time, shares of tech firms AOL (AOL), Hewlett-Packard (HPQ) and Cisco (CSCO) were rallying on job cut news. So were shares of big bank Wells Fargo (WFC), drug giant Merck (MRK) and German industrial conglomerate Siemens (SI).

I plan to keep writing about this until we see even stronger growth in hiring and fewer big layoff announcements ... or until Wall Street stops perversely cheering the short-term jump in profit margins that tend to take place when companies put people out of work. Take the long view, traders!

Reader Comment of the Week! Now that the bile is out of my system, let's celebrate the rapidly approaching end of the week with a classic movie quote.

I joked over on that Twitter thang Wednesday about how shares of J.C. Penney (JCP) were tanking even though the retailer said it was "pleased" with its holiday sales. That made me think of a line from "The Princess Bride."

I was pleased to see that my buddy John Comas took my quote to the next obvious level. And that's why he wins the Reader Comment of the Week.

Ha! Never go in against a Sicilian when death is on the line! And unlike Wallace Shawn, I am actually of Sicilian descent.

And for those of you who made it this far, here is the famous scene from Network I referenced in the lead.

And a snippet of that "inconceivable" scene involving Rex from "Toy Story" fame.

  • Gap stock spikes after strong sales report

    Shares of Gap Inc. jumped after the apparel company reported healthy sales growth in February.

    Gap (GPS) stock was briefly halted after the numbers were inadvertently released ahead of schedule due to a "vendor error," according to a Gap spokesperson. Shares rose 3% after trading resumed.

    The report was set to be released after the market closed, but a transcript of a pre-recorded conference call detailing the sales growth was accidentally MORE

    - Mar 7, 2013 2:31 PM ET
  • Weak economy pinches Red Lobster

    Red Lobster owner Darden Restaurants is predicting bleak sales. But investors didn't get too steamed about it.

    You can add Darden Restaurants, the owner of the Red Lobster and Olive Garden chains, to the growing list of consumer companies blaming a weak economy for a poor sales outlook.

    Darden (DRI) said that it expected pretty steep drops in same-store sales at most of its chains for the fiscal third-quarter. That MORE

    - Feb 22, 2013 12:21 PM ET
  • Uh-oh. We're saving less again

    Americans are spending more and saving less. So much for all those lessons learned about thrift and frugality during the Great Recession.

    The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks.

    Today's personal income report may not get much attention for a lot of reasons. MORE

    - Oct 29, 2012 12:38 PM ET
  • Staples goes splat but Target is on the mark

    Investors are discerning shoppers when it comes to retail stocks.

    The clear winners appear to be big-box stores such as Wal-Mart and Target, while specialty outlets such as office supply chain Staples are bringing up the rear.

    Shares of Target (TGT) rose to a new 52-week high Wednesday after it reported better-than-expected quarterly earnings and raised its forecast for full-year profits. The stock has gained 26% so far this year, outperforming Wal-Mart's MORE

    - Aug 15, 2012 2:13 PM ET
  • Pizza party! Papa John's is a hot stock

    Who doesn't like pizza? Whether it's hot out of the oven or cold leftovers from the fridge the morning after some late-night reveling, pizza is a go-to meal for many Americans. And that's been great news for Papa John's (PZZA). The company reported earnings that topped forecasts Wednesday morning, sparking a nice pop in the stock.

    Traders on StockTwits debated the merits of Papa John's food (and stock) versus its key MORE

    - Aug 1, 2012 11:44 AM ET
  • Best of StockTwits: Whole lotta love for Whole Foods

    Talk about your organic growth! Shares of grocer Whole Foods Market (WFM) surged nearly 10% after the company reported results late Wednesday that were far better than estimates.

    The rally has to be considered vindication for anyone who stuck with the stock after it got pummeled Friday following a disappointing report from Chipotle Mexican Grill (CMG). Shares fell 7%.

    That sell-off was silly. I even called the dip in Whole Foods on MORE

    - Jul 26, 2012 12:59 PM ET
  • Retail sales fizzle. Are consumers tapped out?

    Too bad Macy's sales weren't as pretty

    The annual Macy's 4th of July fireworks show in New York City provided the usual oohs and ahhs. But the pyrotechnics were quickly replaced by a dud of a June sales report from Macy's Thursday morning.

    Macy's (M) said that sales at stores open at least a year, the most widely watched measure of health in retailing, were up just 1.2% from a MORE

    - Jul 5, 2012 12:24 PM ET
Fear & Greed
Sponsored by

To view my watchlist

Not a member yet?

Sign up now for a free account
Stupid Stock Move of the Day
#StupidStock Move of the Day! Yes, Urban Outfitters may be finally turnings things around. But $URBN up 17%? Seems a bit excessive, no?
Most Popular
Powered by VIP.