A Crucial Test for Markets
The stock market is preparing for its first significant challenge of 2025 as investors eagerly await the U.S. jobs report, due on January 10, to gauge economic stability. The report is expected to reflect a labor market that supports continued equity gains without stoking fears of overheating.
After the S&P 500 posted a 23% gain in 2024—marking its best two-year performance since 1997-1998—investors are cautiously optimistic but remain vigilant. The labor market’s performance will be pivotal in shaping economic and Federal Reserve policy expectations for the year.
“Investors are going to want to see confirmation that labor trends remain solid, which means the economic outlook probably remains firm,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial. However, any signs of weakness or excessive strength in the jobs data could introduce volatility and challenge the market’s optimistic momentum.
Jobs Report Expectations
Economists surveyed by Reuters expect the December jobs report to reveal a gain of 150,000 jobs, with the unemployment rate holding steady at 4.2%. This follows November’s 227,000 job gains and a three-month average of 138,000 jobs, indicating a gradual slowdown in hiring.
“This is going to be probably the first clean read of what is the underlying trend in the labor market,” said Angelo Kourkafas, senior investment strategist at Edward Jones.
The Risk of Overheating
A strong labor market typically signals economic resilience. However, investors are wary of a report suggesting an overheating economy, which could rekindle inflation concerns—one of the primary risks for markets in early 2025.
The Federal Reserve, in its December meeting, raised its 2025 inflation forecast and hinted at higher-than-anticipated interest rates. Following three consecutive rate cuts, the Fed is expected to pause easing by the end of January, with a potential 50 basis-point rate cut anticipated later in the year.
“For the jobs report, the market is looking for that Goldilocks number—neither too hot, nor too cold,” Kourkafas noted.
Additional Economic Indicators
Beyond the December payrolls, investors will focus on other key reports this week, including employment figures, factory orders, and services sector data, to gain a comprehensive view of the economy.
While 2024 was a strong year, December proved challenging for stocks, with the S&P 500 dropping 2.5%. Bespoke Investment Group highlighted December’s low number of positive trading days, signaling market softness entering the new year.
“Next week probably ushers in more robust volumes, which would certainly be a better indication of directionality for the market,” said Art Hogan, chief market strategist at B. Riley Wealth.
A Make-or-Break Moment
The December jobs report stands as a pivotal moment for the market, offering key insights into the economy’s trajectory in 2025. A balanced report indicating steady growth without overheating could stabilize markets and boost investor confidence after a rocky start to the year.
“A solid jobs report would certainly help turn things around in this market that has otherwise been pretty soft to end the year and start the new year,” Hogan added.