What’s Next for Nasdaq after the Tech Layoffs

A wave of layoffs has hit the tech sector, suggesting financial problems across various companies. How much can this affect the Nasdaq?

“Trimming” or “cuts”?

Employment figures are typically seen as a lagging indicator because companies try other measures before cutting headcount. Fewer workers imply less production, which means fewer sales in the present and the near future. Now that we are seeing 24K tech jobs lost across 72 major companies this month, does the traditional view of employment apply to the tech sector?

Elon Musk notoriously fired thousands after taking over Twitter, claiming it was a necessary cost-cutting measure for a company that wasn't profitable. With tech firms relying on sky-high valuations, they developed a reputation for having a lot of perks, and didn't have to rely so much on worker efficiency. But EBITDA margins have fallen drastically this year, meaning that tech firms are much less tolerant of extra labour costs. This suggests that the layoffs might be more "trimming" than "cuts".

Not all ‘tech’ is the same

The more prominent names with significant headcount reductions grabbed the most headlines: Meta, Amazon and Twitter. But as for the Nasdaq, the situation could be a little different. Although it's a tech-heavy industry, not all tech is the same. Apple has the largest weighting on the index and dwarfs Meta and Amazon's combined weighting (and Twitter no longer trades). If layoffs are a sign of underlying issues, Apple has reported earnings above consensus. Although Apple has paused hiring, it isn't among the firms slowing hiring.

The company with the fourth highest weighting is reportedly increasing its hiring, despite the CEO saying it would pause. It seems that tech companies like Apple and Tesla, which sell physical products, remain buoyant, at least in the jobs department. The Fed's rate-cutting program pressures companies with high valuations, which might respond with belt-tightening. But that doesn't mean the pressure will apply equally, which means the Nasdaq might still perform well despite woes in certain tech firms.

Nasdaq in bullish pattern

Nasdaq displays a bullish pattern as prices recently breached the upper trendline of an ascending channel. Based on the height of the first upward leg, the medium-term move could extend towards 13300 (R2). 12880 (R1) will be a stumbling block bulls must regain control of in advance.

If the channel fails to hold the line, the 11200 (S1) swing is interim support above the 10600 low. Below there, the door towards the 10k handle will open following the break below 10430 (S2). A short-term slide to 11500 might be a simple pullback.

Key takeaways

A wave of layoffs has hit the tech sector, suggesting financial problems across various companies. While employment figures are typically lagging, this may not be the case for tech firms. Apple and Tesla, which sell physical products, remain buoyant, at least in the jobs department. The Fed's rate-cutting program pressures companies with high valuations, which might respond with belt-tightening. But that doesn't mean the pressure will apply equally, which means the Nasdaq might still perform well despite woes in certain tech firms, especially when Apple has the largest weighting on the index, and it isn't among the firms slowing hiring.