US Jobs Report and the Stock Market: A Key Test for 2025

By Lewis (JO:) Krauskopf

As the new year unfolds, the U.S. stock market is approaching a significant challenge, with the upcoming U.S. jobs report expected to provide critical insights into the economy. Investors are anticipating a report that indicates a stable economy, which is crucial for sustaining expectations of stock market growth throughout 2025.

The stock market experienced some fluctuations at the end of December and the beginning of January, following a substantial surge. The benchmark index ended 2024 with a notable increase of 23% and achieved its largest two-year gain since the late 1990s.

The continued optimism for a third consecutive year of strong performance largely depends on the strength of the economy, particularly labor market statistics, which are vital indicators of economic health. Moreover, these data points may influence the Federal Reserve's interest rate strategies, especially after the central bank surprised investors last month by adjusting its projected rate cuts for 2025.

According to Anthony Saglimbene, chief market strategist at Ameriprise Financial, "Investors are going to want to see confirmation that labor trends remain solid, which means the economic outlook probably remains firm." He also mentioned that unexpected weaknesses in the data could lead to market volatility.

Overall, investors are entering 2025 with a positive outlook for the U.S. economy. A survey from Natixis Investment Managers revealed that 73% of institutional investors believe the U.S. will steer clear of a recession this year.

It is important to note that labor market data has experienced volatility in recent months due to various factors, including notable strikes in the aerospace sector and severe weather events. The November report highlighted the addition of 227,000 jobs, recovering from a modest increase in October.

The average gain over the last three months stands at 138,000, indicating that hiring may be gradually slowing, as noted by analysts from Capital Economics.

The jobs report for December, to be released on January 10, is projected to indicate the addition of 150,000 jobs, with the unemployment rate expected to remain at 4.2%, according to a Reuters survey of economists.

After several inconsistent reports, this upcoming release will likely serve as a crucial measure of the underlying labor market trends, according to Angelo Kourkafas, senior investment strategist at Edward Jones.

While the main focus will be on the jobs report, investors are also cautious about the possibility of the report reflecting an excessively strong economy, which could reignite inflation concerns—a key risk for the market in the early days of the new year.

In its December meeting, the Federal Reserve raised its inflation expectations for 2025, indicating potential for higher interest rates than previously anticipated. Having recently lowered its benchmark rate at three consecutive meetings, the Fed is expected to pause its easing cycle at the end of January, with additional cuts projected later in the year.

For the jobs report, Kourkafas succinctly stated that the market is seeking "that Goldilocks number—neither too hot, nor too cold."

Other Relevant Employment Data

Alongside the payrolls data, the upcoming week will feature additional employment-related figures, as well as reports on factory orders and the services sector, all of which are crucial to market movement.

Despite a robust performance in 2024, stocks struggled in December, with the S&P 500 index experiencing a decline of 2.5%. The month witnessed a notably low occurrence of positive trading days, reflecting underlying market anxiety.

As the market shifts back into gear following the holiday season, analysts like Art Hogan, chief market strategist at B. Riley Wealth, suggest that increased trading volumes next week will likely provide stronger signals about market direction.

A positive jobs report could significantly improve market sentiment and course-correct a market that showed signs of softness both at the end of the previous year and at the start of 2025.

jobs, stocks, economy, market, outlook