US Jobs Report: A Crucial Test for Stocks in 2025

By Lewis Krauskopf

NEW YORK (Reuters) - The stock market is approaching a critical juncture as it braces for the U.S. jobs report, which investors hope will indicate a steady yet non-booming economy. This data is essential to support the optimistic forecasts for stock market growth in 2025.

After a strong performance throughout 2024, where the benchmark index surged 23%, stocks experienced a dip at the end of December and the beginning of January. This marked the largest two-year gain for the market since 1997-1998.

The anticipation for maintaining robust stock performance in 2025 heavily relies on the economic landscape, especially the health of the labor market. Recent labor data will also provide insights into the Federal Reserve's plans regarding interest rates, particularly following their recent decision to lower projected rate cuts.

"Investors seek assurance that labor trends remain stable, indicating the economic outlook is solid," stated Anthony Saglimbene, chief market strategist at Ameriprise Financial.

Any data that points to a more considerable downturn than expected could lead to increased market volatility, Saglimbene added.

As the new year commenced, investor sentiment appeared optimistic regarding the U.S. economy. A survey by Natixis Investment Managers revealed that 73% of institutional investors believe the U.S. will sidestep a recession in 2025.

Labor market statistics have shown fluctuations in recent months, influenced by strikes in the aerospace sector and natural disasters like hurricanes. For instance, November's data revealed an increase of 227,000 jobs, bouncing back from a smaller rise in October.

The three-month average job gain of 138,000 indicates a gradual slowdown in hiring, according to analysts from Capital Economics.

The upcoming December jobs report, scheduled for release on January 10, is projected to reflect an increase of 150,000 jobs with the unemployment rate expected to sit at 4.2%, as per a Reuters poll of economists.

Following the previous two reports, analysts believe this will be the first comprehensive evaluation of the labor market's trends. Angelo Kourkafas, senior investment strategist at Edward Jones, mentioned, "This is going to provide a clearer view of the underlying labor market trends."

However, investors remain cautious about the potential for overly strong labor data that could reignite inflation, a critical concern for market stability early in the year.

During their December meeting, the Federal Reserve adjusted their forecast for inflation in 2025 upwards, suggesting that interest rates might be raised more than previously anticipated.

After a series of rate cuts earlier in the year, the Fed is likely to pause further reductions when it meets at the end of January, only to resume cutting rates later in the year.

For the upcoming jobs report, the market is hoping for a balanced figure—referred to as the "Goldilocks number"—that is neither too high nor too low, according to Kourkafas.

OTHER EMPLOYMENT DATA

While the payroll data takes center stage in the upcoming economic releases, there are additional employment-related figures on the horizon, alongside reports concerning factory orders and the services sector.

Despite a prosperous year in 2024, equity markets struggled in December, with the S&P 500 declining by 2.5%. This December recorded the fewest days of net positive movements in the stock index since 1990, as noted by Bespoke Investment Group.

As the post-holiday trading period begins, Art Hogan, chief market strategist at B. Riley Wealth, suggests that more significant trading volumes next week could offer better insights into the market's trajectory.

"A solid jobs report would certainly aid in reversing the path of a market that has started the new year on a softer note," Hogan commented.

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jobs, stocks, economy