Wall Street Lunch: GM Cuts Tech Workforce

Summary:

• General Motors announces layoffs, majority from Michigan tech campus.
• Conference Board’s leading economic index falls more than expected in July.
• AMD acquires ZT Systems, Estée Lauder under pressure.

Listen below or on the go on Apple Podcasts and Spotify

Layoffs come after GM promoted two former Apple execs to run software & services. (0:16) Carl Icahn settles with SEC over margin loans. (3:02) Goldman says market is full of RINO stocks. (3:50)

This is an abridged transcript of the podcast.

General Motors (NYSE:GM) is letting go of more than 1,000 salaried employees, with the majority coming from its Michigan tech campus.

The layoffs come just two months after the automaker promoted former Apple executives David Richardson and Baris Cetinok to head up the company’s software and services division.

The automaker said in a statement: “As we build GM’s future, we must simplify for speed and excellence, make bold choices, and prioritize the investments that will have the greatest impact. As a result, we’re reducing certain teams within the software and services organization.”

Looking at the latest macro data ahead of Jackson Hole later this week, the Conference Board’s measure of leading indicators dropped -0.6% M/M to 100.4 in July to 100.4, steeper than the -0.3% fall expected.

Justyna Zabinska-La Monica, senior manager for Business Cycle Indicators, says:

“The LEI continues to fall on a month-over-month basis, but the six-month annual growth rate no longer signals recession ahead.”

Stocks are having trouble finding direction, while Treasury yields are also little changed.

Greg Marcus, managing director at UBS Private Wealth Management, says: “While the market has almost fully recovered from the overblown recession fears earlier this month, we expect volatility to remain high for the rest of the year.”

The VIX (VIX) is slightly higher today and looking to snap its streak of nine-straight down sessions since the August 5 surge.

“While we want to be cautious about allocations becoming top heavy and biased towards large-cap tech, there is opportunity in some names whose valuations, despite having come back a bit, are still well off their highs and currently offer a better entry point,” Marcus said. “Small allocations to active management in international equity provide great diversification.”

Among active stocks, Advanced Micro Devices (AMD) is acquiring AI infrastructure provider ZT Systems in a cash and stock deal worth about $4.9 billion.

The transaction value includes a contingent payment of up to $400 million based on certain post-closing milestones. AMD said ZT Systems’ experience in designing and optimizing cloud computing solutions will help cloud and enterprise customers accelerate the deployment of AMD-powered AI infrastructure at scale.

ZIM Integrated Shipping Services (ZIM) surged after the Israeli shipping company raised profit guidance for the year.

Management said it now expects $2.6 billion to $3 billion in adjusted EBITDA for 2024, up from a previous range of $1.15 billion to $1.55 billion.

Estée Lauder (EL) was under pressure after setting guidance below expectations due to “persistent” weak sentiment among Chinese consumers.

The company sees full-year 2025 revenue of -1% to -2% and EPS of $2.78 to $2.98, well below the $3.96 consensus. In addition, Estee Lauder CEO Fabrizio Freda said he would retire at the end of fiscal year 2025 after more than 16 years with the company.

In other news of note, investor Carl Icahn and his firm, Icahn Enterprises (IEP), agreed to pay $2 million to settle SEC charges related to a probe by the regulator over disclosures concerning billions in personal loans.

Icahn was fined $500,000, and IEP was fined $1.5 million over charges that he and his firm failed to disclose information related to Icahn’s pledges of IEP securities as collateral to secure personal margin loans.

The investigation came after Hindenburg Research released a short report in May 2023 that sent shares of Icahn Enterprises tumbling.

The settlement agreement indicates that Icahn pledged up to 65% of his IEP units from 2018 to 2022, and in exchange, he was granted more than $4.6 billion in personal margin loans by various lenders.

And in the Wall Street Research Corner, the next four weeks look very promising for stocks in what Goldman Sachs’ FICC and equities futures strategy team calls a “no rules market.”

Strategist Scott Rubner says U.S. equities have acted like “a bunch of RINOs (Recession in Name Only)” since the big volatility/carry trade event on August 5. Since then, the VIX (VIX) “has declined by 61.78% over the last 9 trading days, the biggest 9-day volatility decline in history.”

“The pain trade for equities is higher as global two-week vacations started on Friday at 4pm,” he added. “The bar for being bearish at the beach into a Labor Day BBQ party is high. This is new.”

“CTA releveraging, Target Vol / Vol Control, unwinding of puts, and corporate demand will act as a tailwind as sellers are out of ammo forcing fundamental investors in higher (and dollar) flow of funds demand will have a larger impact when adjusted for August liquidity.”

Digging into flows from Commodity Trading Advisers as they look to buy back into the market, it’s a “green sweep” over the next week, with buying no matter what the tape does, Rubner said.

“We just witnessed one of the largest and fastest unwinds that I have EVER seen … (the team) estimate that (there were) -$159B worth of global equity futures sold over the last month.”

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