U.S. Jobs Report: A Crucial Test for Stock Markets in Early 2025

By Lewis Krauskopf

NEW YORK (Reuters) - The upcoming week poses a significant challenge for the stock market as it awaits the U.S. jobs report, which investors hope will indicate a stable economy that supports expectations for stock growth in 2025.

The stock market experienced fluctuations at the end of December and the start of January, pulling back after a strong rally. The year 2024 closed with a remarkable 23% increase, marking its largest two-year gain since 1997-1998.

Looking ahead to a potential third consecutive year of growth, much depends on the health of the economy, particularly labor market data, which is a crucial indicator of economic strength. This information could also influence the Federal Reserve's future interest rate strategies, especially after the central bank recently surprised investors by scaling back its expected rate cuts for 2025.

"Investors are keen to see reassurance that labor trends remain robust, which indicates a stable economic outlook," explained Anthony Saglimbene, chief market strategist at Ameriprise Financial.

However, any data that suggests a more significant decline than anticipated could lead to increased market volatility, according to Saglimbene.

As 2025 kicks off, investor sentiment remains positive about the U.S. economy. A survey by Natixis Investment Managers, conducted at the close of 2024, found that 73% of institutional investors believe the U.S. will avoid a recession this year.

Labor market figures have shown volatility in recent months, due to factors such as strikes in the aerospace industry and hurricanes affecting employment data. The report for November revealed a gain of 227,000 jobs, bouncing back from a modest increase in October.

Analysts from Capital Economics noted that a three-month average gain of 138,000 suggests a gradual slowdown in hiring.

The December jobs report, set to be released on January 10, is expected to show the addition of 150,000 jobs, with the unemployment rate projected at 4.2%, as indicated by a Reuters poll of economists.

Angelo Kourkafas, senior investment strategist at Edward Jones, remarked, "This report will likely provide the first clear insight into the underlying trends in the labor market following the previous two reports."

Investors are also cautious that the jobs report might reveal signs of an economy that is too strong, raising the risk of revived inflation, which is a major concern in the early parts of the year.

The Federal Reserve, during its December meeting, adjusted its 2025 inflation forecast upwards, suggesting possible higher interest rates than initially anticipated.

After adjusting its benchmark rate downwards in the past three meetings, the Fed is likely to pause its rate reductions during its upcoming meeting at the end of January, with expectations to cut rates by around 50 basis points throughout the year.

For the jobs report, Kourkafas noted that the market is hoping for a "Goldilocks number" that is not too strong but not too weak.

Other Employment Indicators

While the payroll data will be the primary focus, the coming week will also yield other important labor market figures and reports on factory orders and the services sector.

In spite of a prosperous 2024, stock markets remained sluggish in December, with the S&P 500 declining by 2.5%. According to Bespoke Investment Group, December registered only five days where more stocks gained than lost in the index, marking the lowest ratio of positive days for any month since 1990.

As the holiday season concludes, Art Hogan, chief market strategist at B. Riley Wealth, remarked that next week is likely to bring in higher trading volumes, providing clearer direction for the market.

Hogan added, "A solid jobs report would contribute to reversing the downward trend in a market that has been relatively weak coming into the new year."

jobs, stocks, economy