US Jobs Report Poses First Big Stocks Test of 2025

The upcoming week presents a significant challenge for the stock market as investors look to the U.S. jobs report for clarity on the economy's health. The report will be critical in determining whether the economy is stable but not overheating, which is essential for maintaining positive equity expectations for 2025.

After a remarkable year, where the benchmark stock index surged by 23% in 2024—the largest two-year gain since 1997-1998—the stock market experienced some turbulence at the end of the year and the start of January. This slight cooling off follows a dramatic rally.

The future of further gains largely depends on solid economic performance, and labor market indicators are among the most vital metrics investors examine. The jobs data will also offer insights into the Federal Reserve's plans for interest rates, especially after recent announcements indicating fewer rate cuts might occur in 2025 than previously thought.

Market Sentiment and Economic Outlook

According to Ameriprise Financial's chief market strategist, Anthony Saglimbene, investors are eager for confirmation that labor market trends remain strong, which could suggest a robust economic outlook. Saglimbene warns that any data indicating a sharper decline than expected may incite market volatility.

Despite uncertainties, investor sentiment entering the year is generally optimistic, with a survey from Natixis Investment Managers revealing that 73% of institutional investors believe the U.S. will avoid a recession in 2025.

However, recent labor market data has shown fluctuations due to various factors, such as strikes in the aerospace sector and natural disasters. The job growth in November indicated an increase of 227,000, rebounding from a lackluster October.

Expected Jobs Report Data

The upcoming jobs report, set to be released on January 10, is projected to show a gain of 150,000 jobs, with the unemployment rate anticipated to hold at 4.2%, based on a Reuters survey among economists.

According to Angelo Kourkafas, a senior investment strategist at Edward Jones, this report will likely provide the first clear insight into the underlying trends in the labor market after the mixed signals of previous months.

Investors are also keenly aware of the possibility that the jobs report could show an overly strong economy, which may increase concerns about rising inflation—a crucial risk factor for the markets early in the year. The Federal Reserve recently adjusted its inflation forecast for 2025 upward, suggesting that interest rates may be higher than previously predicted.

In December, after a series of three consecutive rate cuts, the Federal Reserve is expected to pause its rate-lowering strategy when it convenes again at the end of January, with further cuts potentially totaling around 50 basis points planned throughout the rest of the year.

Broader Employment Data and Market Reactions

While the payroll data will garner the most attention, a range of other employment and economic figures will be released during the week, including data on factory orders and the services sector. Despite a strong performance in 2024, the stock market took a hit in December, with the S&P 500 falling by 2.5%.

Bespoke Investment Group noted that December recorded only five days with a greater number of advancing stocks versus declining ones—the lowest ratio for any month since 1990. Following the holiday season, market activity is expected to pick up, providing a clearer picture of market direction moving forward.

As chief market strategist at B. Riley Wealth, Art Hogan, states, a strong jobs report could serve as a catalyst for recovery in a market that has struggled to maintain momentum at the start of the new year.

stocks, jobs, economy