In the upcoming week, the stock market is poised for its first significant challenge of the year, as investors are looking to the U.S. jobs report to reflect a stable economy that is not excessively heated, supporting predictions for equity increases in 2025.
At the close of December and the onset of January, stocks experienced some fluctuations, cooling down after a robust surge. The S&P 500 finished 2024 with a notable 23% increase and recorded its largest two-year gain since 1997-1998.
The potential for a third consecutive impressive year depends, in part, on economic robustness, with labor market statistics being crucial indicators of the economy’s vitality. This data could also provide insight into the Federal Reserve’s interest rate strategy following last month’s market turbulence, caused by the central bank’s lowered expectations for rate reductions in 2025.
“Investors will be seeking assurance that labor trends continue to be robust, indicating that the economic outlook remains solid,” stated Anthony Saglimbene, chief market strategist at Ameriprise Financial.
“Any data suggesting a degree of weakening beyond what was anticipated could induce volatility,” remarked Saglimbene.
Entering the year, investors hold a generally positive view of the U.S. economy. A survey by Natixis Investment Managers conducted at the end of the previous year showed that 73% of institutional investors believe the U.S. will steer clear of a recession in 2025.
Labor market statistics have been inconsistent in recent months due to strikes in the aerospace sector and hurricane impacts. The November figures indicated an addition of 227,000 jobs, recovering from a modest increase in October.
The three-month average increase of 138,000 “indicates a gradual deceleration in hiring,” analysts from Capital Economics noted in a report.
The December report, set to be released on January 10, is anticipated to reveal a growth of 150,000 jobs alongside an unemployment rate of 4.2%, according to a Reuters survey of economists.
“Following the previous two reports, this will likely provide the clearest view of the prevailing trend in the labor market,” commented Angelo Kourkafas, senior investment strategist at Edward Jones.
Investors are also cautious about the jobs report potentially indicating a robust economy, as a resurgence of inflation poses significant risks to the markets early in the year.
At its December gathering, the Fed revised its inflation forecast for 2025 upwards, suggesting greater interest rates than previously anticipated.
After three consecutive meetings of lowering its benchmark rate, the Fed is expected to pause its easing actions when it convenes again at the end of January, before implementing further cuts of around 50 basis points throughout the remainder of the year.
For the jobs report, the market is “anticipating that ideal Goldilocks figure — not too hot, not too cold,” Kourkafas stated.
Other employment data
While the payroll figures will be the primary focus, the forthcoming week also brings additional market-sensitive employment statistics, along with reports on factory orders and services.
Despite a strong performance in 2024, stocks showed weakness in December, with the S&P 500 declining by 2.5%. The month featured only five days where more stocks in the index advanced than fell, marking the lowest proportion of such relatively positive days for any month since 1990, according to Bespoke Investment Group.
Post-holiday, “next week is likely to see increased volumes, which would certainly provide a clearer indication of the market’s direction,” said Art Hogan, chief market strategist at B. Riley Wealth.
“A favorable jobs report would undoubtedly contribute to a shift in the current market, which has been relatively soft at the close of the year and the start of the new one,” Hogan remarked.
