In the past, company share prices typically responded very positively to announcements regarding job layoffs if they were motivated by productivity gains or cost savings. Now though, corporates have underperformed the overall market by 2% after making such disclosures.

Equity markets, it appears, have stopped rewarding companies making job cuts, even if their stated justifications are benign, and are punishing share prices regardless.

Why is this? Well, Goldman Sachs analyst Elsie Peng thinks the explanation is that investors are more skeptical of the reasons companies provide to account for the redundancy programs. In a note published Monday, Peng analyses share price performance in the aftermath of these announcements and suggests that investors may fear the productivity gains cited may actually be a smokescreen for more negative signals in operational performance like rising interest expense or declining profitability.

Labor market weakness in 2025 has been characterized by the low level of hiring, Peng explains. While traditional signals of job cuts - like initial jobless claims or the layoff rate series in the job openings and labor turnover survey - remain low, a lot of third-quarter earnings commentary indicated a potential increase in job layoffs to come. Often, management is claiming these cuts are motivated by an intention to use AI to reduce labor costs.

The trend of late, Goldman finds, has been for companies to attribute job cuts to generally benign initiatives to restructure, driven by automation and technological improvements. But while these shares have lagged the market by 2%, those companies cutting workers and explicitly telling investors that a restructuring is the reason have suffered even more pronounced falls. These average excess returns are minus 7%.

The equity market has responded negatively to recent layoff announcements, even for companies that specifically cited restructuring as the reason for layoffs

Goldman's note reveals that companies announcing layoffs recently, irrespective of the explanations provided, have experienced higher capex, debt and interest expense growth and lower profit growth than comparable companies within the same industries this year.

The research suggests, therefore, layoffs might have been driven by more disturbing factors rather than the innocuous justifications proffered by chief executives.

Peng emphasizes that Goldman equity and credit analysts view the risks to the overall economy implied by more widespread layoffs as limited. Balance sheets are, they believe, healthy in aggregate and profit margins are elevated at present for the most part.

The S&P 500 SPX closed lower on Monday is just over 1% away from a record high, having gained 16% this year. U.S. stock-market futures (ES00) drifted lower before jobs data.