The first full trading week of the new year could shake the U.S. stock market out of its winter holiday slumber as the monthly jobs data headlines a busy start to 2026 for investors.
Stocks slid in the final session of 2025, with the benchmark S&P 500 falling into a monthly loss for December.
But the index still climbed more than 16% in 2025, its third straight year of double-digit percentage gains, while the Cboe Volatility index was last just above its lows for the year.
Trading volumes were thin at the end of 2025, but the new year could get off to an eventful start.
Aside from economic data, investors await a U.S. Supreme Court decision on President Donald Trump's tariffs along with his choice of a new Federal Reserve chair, and U.S. corporate earnings season is around the corner.
While the S&P 500 is near record highs, it is also around the same level it was in late October, noted Matthew Maley, chief market strategist at Miller Tabak.
"The market is looking for direction," Maley said. "We break out of these ranges and that's going to give either people a lot of confidence or a lot of concern depending on which way it breaks."
JOBS & INTEREST RATES
The employment data due on January 9 could provide a jolt either way. Concerns over weakness in the labor market prompted the Fed to lower interest rates at each of its last three meetings of 2025, as the U.S. central bank juggles its goals of full employment and contained inflation.
Lower rates have supported equities, but the extent of further cuts in 2026 is unclear. Fed officials were divided over the path for monetary policy at the most recent meeting in December.
Inflation remains above the Fed's 2% annual target. With the benchmark rate at 3.5%-3.75%, Fed funds futures suggest little chance of a cut at the next meeting in late January, but nearly a 50% chance of a quarter-point reduction in March.
"The fact that there has been softening in the labor market has really given the Fed good cover to change their outlook about reducing rates," said Eric Kuby, chief investment officer at North Star Investment Management in Chicago.
At the same time, investors are also wary that an overly weak report could signal more severe economic concern than markets currently anticipate.
Employment for December is expected to have climbed by 55,000 jobs, according to a Reuters poll. Payrolls rose by 64,000 in November, but the unemployment rate was 4.6%, a more than four-year high.
"If (employment) starts turning down in any kind of meaningful way, that's going to signal that the recession is a lot closer than people think," Maley said.
INFLATION, Q4 EARNINGS
Other data next week includes manufacturing and services sector activity, along with job openings and other labor market data. Economic releases are returning to more normal schedules following the 43-day government shutdown that delayed or canceled many key reports.
A closely watched report on inflation trends, the monthly U.S. consumer price index, is due out on January 13.
"Anything that has to do with underlying economic activity and inflation is really going to catch the market's attention," said Scott Wren, senior global market strategist at Wells Fargo Investment Institute, adding that a backdrop of modest economic growth and moderating inflation is "a good environment for stocks and for risk assets in general."
Investors will be gearing up for fourth-quarter earnings season, with results from JPMorgan on January 13, along with other major bank reports that week.
With stocks trading at historically lofty valuations, investors are banking on strong earnings growth. Overall S&P 500 company earnings are expected to have climbed 13% in 2025, with another 15.5% rise in 2026, according to LSEG IBES data.
"To make an investment case for the S&P 500 at current levels, one must believe in some combination of good/very good earnings growth and continued investor confidence in economic conditions and macro policy," said Nicholas Colas, co-founder of DataTrek Research, in a research note.
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