- Markets are focused on the Dec. 2025 jobs report due Jan. 9, expected to show about 55,000 payroll gains and 4.6% unemployment, as a key signal for Fed policy.
- With the fed funds rate at 3.50-3.75%, futures price little chance of a January cut but roughly 50% odds of a 25-bp cut by March if data cools further.
- The S&P 500 starts 2026 near record highs but stuck around late-October levels, awaiting direction from jobs, CPI, and the Q4 earnings season.
- Sticky inflation, elevated valuations, and policy uncertainty including the mid-2026 Fed chair decision keep the outlook highly data-dependent.
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The upcoming nonfarm payroll and unemployment data for December, scheduled for release on January 9, 2026, has emerged as a crucial inflection point for U.S. monetary policy and market sentiment. Analysts expect a modest increase in employment—about 55,000 jobs—reflecting sobering labor market conditions following prior reports of weakness. With unemployment already at a more than four-year high of 4.6%, the Fed’s latest easing moves (three cuts in 2025) reflect growing concern. But given inflation remains persistently above target, particularly in core measures, the margin for further rate cuts is narrow and likely dependent on confirming data.
Markets are doubting the timing of additional easing. With interest rates currently at 3.50-3.75%, futures markets show little chance of rate relief in late January, but growing odds (~50%) for a cut by the March FOMC meeting. Indeed, Fed officials—including Philadelphia Fed President Anna Paulson—are signaling that conditions for easing need to be clearer, and that rate cuts will be slow and contingent on continued cooling of inflation and further labor market softening.
Stock markets entered 2026 amidst muted momentum. The S&P 500, despite a strong 2025 return exceeding 16%, is now trading at levels seen in late October, signaling a lack of new bullish catalysts. Key upcoming data points—particularly inflation (CPI), sectoral activity (manufacturing/services), job openings—and the 2025 Q4 earnings season (starting with banks like JPMorgan) are poised to provide that directional impetus.
Strategic implications for investors and policy makers alike are profound. For investors, the high valuation levels of risk assets require validation through earnings growth and stabilization of macro policy; the risk of disappointments is elevated. For the Fed and incoming leadership, the labor market’s trajectory, inflation behavior, and geopolitical or policy risks (such as tariff litigation) may shape the zero-sum dynamic between growth support and inflation control. The selection of the Fed chair in mid-2026 adds another layer of uncertainty to forward guidance and monetary policy credibility. Open questions include how resilient inflation remains, whether labor market softening accelerates, and whether external shocks could test markets already near lofty valuation thresholds.
Supporting Notes
- The Fed’s benchmark interest rate stands at 3.50-3.75%, and futures suggest little chance of a rate cut at the late January meeting, but nearly 50% probability of a 25-basis-point reduction in March.
- Payrolls for December are expected to increase by about 55,000 jobs, down from 64,000 in November; meanwhile, the unemployment rate was 4.6%, matching its highest in more than four years.
- The S&P 500 index ended 2025 with over 16% gains, but closed December in monthly loss territory; it is currently trading around October 2025 levels.
- Inflation remains above the Fed’s 2% annual target; the monthly consumer price index report is due on January 13.
- S&P 500 company earnings rose about 13% in 2025, and are forecasted to rise approximately 15.5% in 2026, per LSEG IBES data.
- An upcoming Fed chair appointment, ongoing tariff litigation at the U.S. Supreme Court, and resumption of delayed economic data releases (post-government shutdown) represent key policy and legal variables in early 2026.