Trading volumes were meager at the end of 2025, but the new year could get off to an eventful start. Beyond the economic data, investors are awaiting a U.S. Supreme Court decision on President Donald Trump’s tariffs, along with his choice for a new Federal Reserve chairman, and the U.S. corporate earnings season is upon us.In the first session of 2026 on Friday, the S&P 500 posted a small gain as semiconductor stocks rallied.
While the S&P 500 is near record highs, it is also around the same levels it was at the end of October, noted Matthew Maley, chief market strategist at Miller Tabak.
“The market is looking for direction,” Maley said. “We are breaking out of these boundaries and that will either give people a lot of confidence or a lot of concern, depending on which way things go.”
VACANCY DATA MAY SEND RATE SIGNALS
In any case, the employment figures that will be released on January 9 could come as a shock. Concerns about weakness in the labor market prompted the Fed to cut rates at each of its final three meetings in 2025, as the U.S. central bank juggles its goals of full employment and contained inflation. Lower interest rates have supported equity markets, but the extent of further cuts in 2026 is unclear. Fed officials were divided on the path forward for monetary policy at the most recent meeting in December. Inflation remains above the Fed’s annual target of 2%.
With benchmark rates of 3.5%-3.75%, Fed Funds futures suggest little chance of a cut at the next meeting in late January, but almost 50% chance of a quarter-point cut in March.
“The fact that there is a weakening in the labor market has given the Fed good cover to change its view on lowering rates,” said Eric Kuby, chief investment officer at North Star Investment Management in Chicago.
At the same time, investors are also wary that a too-weak report could signal more serious economic concerns than markets currently expect.
Employment is expected to rise by 55,000 jobs in December, according to a Reuters poll. Wages rose by 64,000 in November, but the unemployment rate was 4.6%, the highest level in more than four years.
“If employment starts to decline in any meaningful way, that will be a signal that the recession is much closer than people think,” Maley said.
INFLATION, PROFITS IN THE Fourth Quarter ARE ALSO looming
Other data next week will include activity in the manufacturing and services sectors, along with vacancies and other labor market data. Economic publications are returning to a more normal schedule after the 43-day government shutdown which delayed or canceled many major reports.
A closely watched report on inflation trends, the monthly U.S. Consumer Price Index, will be released on January 13.
“Anything that has to do with underlying economic activity and inflation is really going to grab the market’s attention,” said Scott Wren, senior global market strategist at the Wells Fargo Investment Institute. He adds that a backdrop of modest economic growth and moderating inflation “is a good environment for equities and for risk assets in general.”
Investors will be gearing up for fourth-quarter earnings season, with JPMorgan reporting results on January 13, along with other major bank reports that week.
With stocks trading at historically high valuations, investors are counting on strong earnings growth. Total S&P 500 corporate profits are expected to rise 13% in 2025, with another 15.5% in 2026, according to LSEG IBES data.
“To make an investment case for the S&P 500 at current levels, one must believe in a combination of good/very good earnings growth and continued investor confidence in economic conditions and macro policies,” said Nicholas Colas, co-founder of DataTrek Research, in a research note.
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