US Jobs Report: The First Major Stocks Test of 2025

By Lewis Krauskopf

NEW YORK (Reuters) - Investors are gearing up for a significant event in the coming week as the stock market faces its first major test of 2025: the U.S. jobs report. Many are hoping it will reflect a stable economy, one that supports positive expectations for stock market growth in the year ahead.

After an impressive performance in 2024, where stocks rose by 23%, recent weeks have seen some fluctuations and a cooling off. The market ended the previous year with its largest two-year gain since 1997-1998, leading investors to anticipate another strong year.

The strength of the economy will be pivotal for the prospects of a third consecutive standout year. Labor market data, in particular, serves as a crucial indicator of economic health. This information can also influence the Federal Reserve's plans regarding interest rates, especially after the central bank recently adjusted its outlook on rate cuts for 2025.

"Investors are going to want to see confirmation that labor trends remain solid, indicating the economic outlook is likely stable," commented Anthony Saglimbene, chief market strategist at Ameriprise Financial.

"If the data shows signs of weakness beyond expectations, it could lead to increased market volatility," Saglimbene warned.

Despite the uncertainty, most investors start the year with optimism for the U.S. economy. A survey by Natixis Investment Managers indicated that 73% of institutional investors believe the U.S. will avoid a recession in 2025.

Labor data has been somewhat erratic in recent months, influenced by industry strikes and extreme weather events. Last November, the economy added 227,000 jobs, rebounding from a lackluster performance in October.

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

The jobs report set to be released on January 10 is projected to reveal an addition of 150,000 jobs and an unemployment rate of 4.2%, according to a Reuters poll of economists.

Angelo Kourkafas, senior investment strategist at Edward Jones, suggests that this report will likely provide the first clear perspective on the underlying labor market trends.

Investors are cautious about the possibility of the jobs report indicating too much strength in the economy, as a resurgence in inflation could pose risks to the market early in the year.

During its December meeting, the Federal Reserve raised its inflation forecasts for 2025, suggesting a potential for higher interest rates than initially expected. After a series of rate cuts in recent meetings, the Fed is likely to pause its easing strategy before possibly implementing additional cuts later in the year.

For the upcoming jobs report, market participants are hoping for what Kourkafas describes as a "Goldilocks number" — not too strong and not too weak.

Additional Employment Data and Market Outlook

While the jobs report will be the center of attention, other employment figures and reports concerning factory orders and the services sector will also be released in the coming days.

Despite a successful year in 2024, the stock market saw difficulties in December, with the S&P 500 declining by 2.5%. December recorded only five days when more stocks in the index advanced than declined, marking the lowest positive share for any month since 1990, as per Bespoke Investment Group's analysis.

As the holiday season concludes, expectations are that upcoming trading will welcome more robust volumes, which could better indicate market trends, says Art Hogan, chief market strategist at B. Riley Wealth.

"A solid jobs report would certainly help to rejuvenate a market that has faced headwinds at the end of last year and the start of this new year," Hogan added.

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Jobs, Stocks, Economy