Tencent (TCEHY, 0700.HK) — the parent company of social media app TikTok — shares are trading higher after announcing layoffs at video game developer Riot Games, joining the ranks of companies rolling out job cuts in 2024.

Yahoo Finance Markets Reporter Josh Schafer cites Goldman Sachs' latest jobless claims analysis and what recent labor market trends could mean for the Federal Reserve's dual mandate.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

BRAD SMITH: Well, shares of Tencent-- they're trading higher this morning after announcing its video game developer, Riot Games, is laying off about 11% of its staff. Tencent following in the footsteps of dozens of other companies like Amazon and Alphabet, making job cuts in the new year.

In a Goldman Sachs note out this week, the firm suggesting that tech layoffs are not concerning, and that the labor market is normalizing to pre-pandemic levels. With what these layoffs mean for the broader labor market, "Yahoo Finance" reporter, Josh Schafer, is here.

Josh, this was one of our themes last week once we got even more of those cuts that started to come to light. Labor market in limbo. So what is Goldman saying here?

JOSH SCHAFER: Yeah, Brad, so you talk about labor market in limbo, and then in that same week, we had jobless claims hit their lowest level since September of 2022, right? And weekly jobless claims, if you dig deep into the economic community, you'll get varying thoughts on how accurate those are, but we look for overall trends here, right?

And I think Goldman had two key graphs I want to point out in this note. The first one is those jobless claims that they were highlighting, and also not just jobless claims but overall layoff mentions. So they highlighted in that, you can see jobless claims and layoff references. That's in the actual jobless claims report.

There's more than just the number that comes with that are actually very low. That's your dark purple line there. And so overall, you're seeing these numbers-- if we just look at the trend, right-- are about 2019 levels. Like we're talking 200,000 people applying for these, on average, about a week.

And then really, the other important graph here is not only-- is that what we're seeing but also when you take a look at unemployed workers, they're still getting jobs. And that's an important part when we talk about the labor market here. So I reached out to a couple other economists and sort of got their thoughts on if these headlines matter overall.

And I thought it was interesting, Brett Ryan over at Deutsche Bank, their team still has a recession call. They think that the labor market is going to slow down. But he said things like this aren't really quite what you're looking for. You're looking for actual layoff data to pick up. And we just haven't seen it yet. At some point, you need to see it in order for the labor market to actually be slowing down.

SEANA SMITH: And Josh, not to put you on the spot, but in terms of when they are expecting to see that or the material weakness that maybe they are expecting to see in the labor market, given that recession call, can you put that into context for us and compare that maybe to what Goldman is saying? Because it sounds like Goldman, overall, is still very optimistic relatively speaking on what the labor market trends still look like today.

JOSH SCHAFER: It comes back to-- remember our discussion about why the recession never came in '23, right? And it was a lot of those lagging impacts of the Fed policy that we never saw happen. So one way it could come would be basically if the Fed doesn't cut in March, and say, maybe the Fed doesn't cut in May. Now we're talking about restrictive policy for longer than people thought.

And then at some point, companies who are paying higher borrowing costs are going to have to find a new way to get capital, right? So then they might finally cut jobs. We haven't seen that happen yet. That has not been part of this post Fed rate hiking cycle that we've seen. But if the Fed stays higher for longer-- and by longer, I mean significantly longer than we're looking at right now, companies might have to change the strategy a little bit.

BRAD SMITH: All right, Josh, thanks for tracking this update and the sentiment right now around the labor market here. We'll continue to keep a close eye on that.