Microsoft Joins Layoff Wave Amid Signs of Labour Market Weakness

The tech sector is on another firing spree as US labour numbers show increasing weakness, but is this a trend where Fed action can support equities or signs of bigger problems?

AI Effect of Labour Market Weakness

Microsoft is in the news this week over reports that next week after cutting its workforce by 6000 last month. The headcount reduction this time is in the Xbox division, as the company retools for its next generation of gaming consoles. However, the company has also been reducing the number of employees at its game studios. The layoffs come as several major tech firms have announced over the summer, with over 60000 job losses already announced.

The primary reason is cost-cutting and the use of AI, as . However, it's not just tech companies that are reducing headcount. Amazon, Meta, and CrowdStrike are among the notable tech firms, but Walmart and Disney are also concerned about costs and are cutting roles as well. Combined with falling consumer confidence and below-average job creation numbers, some analysts fear that the layoffs might be a symptom of an . Continuing jobless claims last week rose to near the highest level in four years, as job seekers find it increasingly hard to get a job. Economists are now predicting the unemployment rate in June will tick up to 4.3%.

The Effect on Markets Could be Positive

A slight softening in the , particularly the tech-heavy Nasdaq, which hit an all-time record high on Wednesday. The Fed has been sticking to high interest rates as it worries about higher inflation from tariffs, but weakness in the job sector could bring its second mandate into play and incline the Fed towards easing. If the economy continues to grow while interest rates fall, then it could be the sweet spot for increasing corporate profits, coupled with cheaper investment capital.

But if the job market deteriorates too much, it could mean that businesses see margin pressure, which could counteract the effects of monetary policy easing. There's a diverse range of theories explaining why it has become increasingly difficult for Americans to . For now, however, the Fed seems reassured that, despite the tech layoffs, the job market and the economy remain solid. Although Fed Chair Jerome Powell admitted before Congress this week that rate cuts could come sooner if inflation doesn't rise as much as expected.

Nasdaq Slows Down at Record Highs

With the 20-day VWAP bands expanding and prices breaking out to the upside, further upside beyond the round 22500 resistance and the 22600 level that the upper VWAP reached back in March could extend towards 23K. The ‘autotrend’ 4 extension points to 22800, followed by the ‘autotrend’ 5 at 22900. However, if bullish momentum wanes as the RSI approaches the overbought territory, a false break could send prices down to support at the descending ‘autotrend’ trendline 22040, with added pressure opening the door to the average and lower VWAPs at 21800 and 21360.

Source: SpreadEx / US Tech 100

Key Takeaways

Microsoft is expected to announce thousands of layoffs next week, as it aims to streamline its operations through automation and cut costs. This is a move mirroring a broader trend across industries, with major players and non-tech companies reducing headcounts due to costs and economic slowdown concerns. While the cuts signify labour market weakness, a slight softening could benefit stocks because the Fed would be more inclined to ease. However, if the job market deteriorates too much, it could weigh on markets. Meanwhile, the Fed seems reassured that the job market and the economy remain solid, though Powell has acknowledged that rate cuts could come sooner if inflation doesn't rise as expected.