Source: Zhitong Finance and Economics

Everyone wants to know when US stocks will hit bottom, and Royal Bank of Canada's strategist sees the answer in the number of layoffs in industrial companies.

Before the end of January, more than 68500 employees in the technology industry were laid off. For the technology industry, layoffs came after a rapid increase in the number of employees, and during COVID-19 's early home-office model, technology companies were eager to recruit. By the end of fiscal year 2021$Amazon (AMZN.US)$It employs more than 1.6 million people, double the number in 2019.$Meta Platforms (META.US)$The number of employees increased by about 60 per cent during the COVID-19 epidemic.

Although there has not been a massive expansion of enrollment before, now even$Dow Inc (DOW.US)$、$3M (MMM.US)$And other industrial giants are also laying off staff. Lori Calvasina, head of equity research at RBC, wrote in a report on Monday that "layoffs are new for industrial companies. Dow has cut only 2000 jobs, but if layoffs surge, it could mean that the economy is in recession and the market is about to hit bottom," Zhitong Financial APP learned.

Calvasina points out that industrial companies tend to lay off staff on a large scale during recessions. More than a decade ago, the S & P 500 hit a low of 676.53 after the bursting of the U. S. housing bubble in March 2009. That was shortly after industrial companies announced about 60, 000 job cuts, the highest number of layoffs during the recession. The recession at the beginning of the 21st century showed a somewhat similar picture, with the stock market trough in October 2002 after the peak of layoffs in industrial companies.

"it is worth noting that in every period of economic stress we studied, there was a peak of layoffs in the industrial sector," Calvasina wrote in the report.

To be sure, the data still show that the economy is healthy and that a recession may never happen. Us gross domestic product grew 2.9 per cent in the fourth quarter of last year, slightly slower than the 3.2 per cent growth in the previous quarter, but still a sign of economic strength.

"this time, layoffs in the industrial sector are still very small," Calvasina wrote. This "so far supports the argument for a soft landing, and we are optimistic that this situation can be maintained".

She believes investors should also be wary of letting past performance determine decisions about the future, but the data give "one more thing to check on our list of things that we think will happen when the stock market hits bottom across the board".

Edit / Corrine