This uncertain macro environment is starting to bleed through to corporate decision-making. News of layoffs is continuing today, with shareholders in Dow (NYSE:DOW) stock bemoaning news that Dow layoffs will be commencing globally.
Reports indicate that chemical company Dow is looking to cut around 2,000 jobs globally. These layoffs are expected to save the company around $1 billion this year. The move should theoretically bolster the company’s balance sheet in the near term.
Indeed, the reaction to these layoffs is interesting, with DOW stock actually losing steam so far. Although many large-cap tech stocks have seen their valuations surge after announcing layoffs lately, the story appears somewhat different for more economically important companies like Dow.
Let’s dive into what may be behind this interesting market reaction.
DOW Stock Drops on Announcement of Dow Layoffs
Undeniably, the broad-based hiring spree many tech companies went on following the pandemic has led to some concerns among investors. Accordingly, as companies gear up to become more profitable, it stands to reason why certain tech stocks have seen a bump in valuation following job cuts. Investors want cost control and these companies are listening.
That said, when companies like Dow announce layoffs, it’s a different story. This global chemicals giant is, in many ways, an economic bellwether. When things are rolling along smoothly, DOW stock is often one of the best performing companies out there. Given global supply-chain issues and labor shortages, though, investors may not want to see layoffs from the company because they could indicate potentially pervasive global economic weakness.
Of course, one could argue that this sort of move is necessary, if the company forecasts weaker growth on the horizon. Dow’s recent weaker-than-expected fourth-quarter numbers hinted that such an environment could already be here. So, perhaps this is the right move at the right time.
Investors appear uncertain with respect to Dow’s prospects right now. With bad news now becoming bad news, it will be interesting to see what these layoffs mean for the overall market moving forward.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.