More Videos
- Buffett's Predictions For Next Year—And Every Year
- Cyber Monday: The Last Vestige of Dotcom Hype
- Governments Must Act to Avoid More Dubais: El-Erian
- Dubai Stocks Shed 7%, Abu Dhabi Tumbles 8%
- The World's Biggest Debtor Nations
- Goldman Sachs Party Ban: No Gatherings of 12 or More
- Fed Tweaking Plan to Pull Money Back out of Economy
- Scientists Gone Wild: Climate Debate Turns Nasty
- Regulators Compile Global List of 'Systemic Risk' Banks
- Cyber Monday: The Last Vestige of Dotcom Hype
- Dubai Fear is 'Noise'—Stay Fully Invested: Strategist
- Tech Comes to Holiday Shopping's Rescue?
- Timeless and Time-Tested Warren Buffett Watch Predictions
- Roginsky: The Botax Whose Time Has Come
- Buy or Hold: Analyst Rates 10 Retail Stocks
- Execs: Tis The Season To Take Control
- November Winners & Losers
- Farrell: Testing Those International Waters Again
MOST SHARED
- Dubai Stocks Shed 7%, Abu Dhabi Tumbles 8%
- Timeless and Time-Tested Warren Buffett Watch Predictions
- Governments Must Take Steps To Avoid More Dubais: El-Erian
- Black Friday Sales Disappoint Investors; Amazon Up
- US Senator Opposes Fed Chief Bernanke Renomination
- Tiger Woods Wants to Protect Family Privacy: Agent
- Dubai's Nakheel Seeks Suspension $5.25 Billion in Bonds
- Dubai is Harsh Reminder of Prolonged Global Recovery
- BofA Aims to Clearly Spell Out Credit Card Terms
Text Size 
Back when things made sense in the stock market, a company announcing layoffs would be greeted as a positive sign that it was getting its act together and shoring up its bottom line.
 |
Not today, though, when job cuts, such as the 53,000 served up this week by Citigroup, are greeted as just another reason to think the sky is falling.
"Anytime where people aren't totally panic-stricken about everything and where the one-offs tend to be more company-specific ... historically many of those companies have rallied on the appearance that they are developing some fiscal responsibility," says Uri Landesman, head of global growth strategies at ING Investment Management. "In this case, however, it is being seen as a sign of deeper panic."
Where one might normally expect the Citi [C
Loading...
()
] layoffs to generate some enthusiasm that the banking giant is cleaning up its balance sheet, investors are ditching the stock in droves. Citi shares have lost half their value this week alone as the company's market value fell below that of US Bancorp [USB
Loading...
()
], which is one-eighth as large by assets.
But Citi has hardly been alone in terms of losing share price after announcing layoffs. A slew of other companies have experienced the same phenomenon, and the trend is likely to continue.
"For the foreseeable future, until the market stabilizes, you will see a similar reaction," Landesman says. "If CEOs are expecting their stocks to rally on layoffs, I don't think that will happen in the short term. Right now it's being seen as a sign of weakness rather than a sign of strength."
A few cases in point, and they're not limited to the financial sector:
- JPMorgan Chase [JPM
Loading...
()
] is cutting about 10 percent of its workforce, sources say, but its stock continues to tumble, down by 15 percent Thursday despite the cost-cutting.
- Mattel [MAT
Loading...
()
] is beginning layoffs of 2.9 percent of its global workforce this month, but its stock is off more than 17 percent this week alone.
- Goldman Sachs [GS
Loading...
()
] notified 3,200 employees this week that they will be jettisoned, yet the stunning decline of the company's stock continued with a 20 percent loss since Monday.
- Dell [DELL
Loading...
()
] is nearing the end of 9,000 job cuts but has seen share price tumble more than 25 percent over the past four weeks.
- Xerox [XRX
Loading...
()
] has cut 5 percent of its workforce, or 3,000 positions, and seen shares fall more than 35 percent in the past month.
The takeaway: Much of this new round of layoffs comes from companies with problems far too complicated to be solved simply by cutting personnel costs.
"What we're seeing is the overall market keeps getting pounded and pounded by bad news," says Rick Pendergraft, market analyst at Investors Daily Edge newsletter. "Individuals haven't reached the point where they've become numb to that information."
Worse than that, the job cuts have raised concerns over whether some of Wall Street's most familiar names can survive the current crisis.
"Even a year ago this (layoff news) might be more favorable received," says Owen Malcolm, senior vice president at Sanders Financial Management in Atlanta. "Now, a firm like Citi, hard as it is to believe (the market is wondering) if they're going to survive or survive in their current structure or format."
What Can Investors Do?
The sour mood has presented vexing challenges for investors.
Most pros now are getting as far away from risk as possible and looking to find only the most solid companies in the market. Landesman says ING is "very long" on both Wells Fargo and JPMorgan Chase, two banks that have somewhat weathered the credit crisis and could be good candidates to be among the last big banks standing once the smoke clears.
 |
But even they've seen hard times, with Wells Fargo [WFC
Loading...
()
] shares off more than 20 percent and JPMorgan's [JPM
Loading...
()
] stock down more than 30 percent since Sept. 1.
"They have some of the same exposures but I just think they're in much better shape than Citi right now," Landesman says. "They're better capitalized, they've just been able to make very valuable acquisitions, which they basically got for a song and are going to be paying dividends."
Using a similar strategy, Pendergraft sees AT&T [T
Loading...
()
] perched on solid ground, above the fray of the numerous weaknesses bedeviling the markets. And he reiterated an earlier advocacy of Chattem [CHTT
Loading...
()
], maker of Gold Bond foot powder and other consumer health care products, as a company that is positioned to weather the storm.
For Investors
- Pros: Get Used to Dow at 6,000
- 101 Blue-Chip Stocks Below $10
- Oil Around $50, But Could Keep Falling
- Options Action: Betting Against Financials
- Where to Hide During Market Carnage
- Stock Picker: Dollar Stores Thriving
Others, though, are avoiding equities and focusing on corporate and municipal bonds.
Malcolm said he's been buying a variety of municipal bonds because of their safety appeal as well as attractive yields, but does not like the risk associated with many corporate bonds.
"The (corporate) yields are definitely attractive and competitive but we feel it's a much safer but still very attractive bet in the municipal bond market, where we still feel spreads are very attractive," he says. "Not to say that there still aren't problems with various markets, but we still have confidence in the risk-reward formula."
The move towards safety is unsurprising considered the volatile nature of stocks, a condition that Citi and others have only exacerbated with the sharp layoffs.
"They appear to be using a hatchet rather than a scalpel," Pendergraft says. "If you see a company that's paring back a little bit because demand has fallen off, that's not a bad thing. That's kind of keeping up with the times. When you see 20 percent cuts, now you've got to question the viability of the business."
Until the dust clears with Citi, General Motors [GM
Loading...
()
], Ford [F
Loading...
()
] and other big companies under fire, advisers are telling their clients to keep their powder dry.
"They could strike a deal tonight or over the weekend that could alter the future course of Citigroup or GM or Ford. There's no way to predict that," Malcolm says. "As an investment adviser we're telling our clients to steer clear and resist the temptation to bottom-fish."
Print
Email
- Ever wished your cab driver would stop chatting and just get to where you're going? Well, that moment is closer than ever.
- UPS is giving its customers the option to offset its carbon emissions when sending a package.
- Raising alligators is hard work, and the fickle taste of rich consumers has just made it much harder, says the NY Times.
- The continued real estate boom in China is partially fueled by a generational flood of newlyweds.
- From the why-didn’t-I-think-of-that file, we present Jason Sadler, a man whose job is wearing T-shirts.
- Shopping for a gadget hound? The choices can be baffling. Here are a few that should be a hit.
Data is a real-time snapshot *Data is delayed at least 15 minutes