The US stock market stumbled into the first full week of 2025, with major indices experiencing declines. The S&P 500 and Dow Jones Industrial Average each shed approximately 1.5%, while the Nasdaq Composite fell nearly 2% in the previous five trading sessions. This week, investors will closely scrutinize a critical series of labor market data releases, culminating in Friday’s December jobs report from the Bureau of Labor Statistics. This report, along with updates on job openings, private wage growth, and service sector activity, will provide the final economic picture of the labor market before the Federal Reserve’s upcoming policy meeting scheduled for January 30-31.
Table Content:
Assessing the Labor Market Landscape
While the labor market showed signs of cooling throughout 2024, the Federal Reserve remains confident in its overall trajectory. Federal Reserve Chair Jerome Powell characterized the labor market as “good” in his December 18th press conference, highlighting the diminished “downside risks” that emerged during the summer of 2024 when the unemployment rate saw a sharp increase. Powell emphasized the current state of the labor market as “looser than pre-pandemic” and continuing to cool gradually and orderly, suggesting that no further cooling is necessary to achieve the Fed’s 2% inflation target.
Economists anticipate the upcoming data will reflect this continued gradual cooling. Consensus forecasts predict the December jobs report will indicate the addition of 153,000 jobs, a decrease from November’s 227,000. The unemployment rate is projected to remain stable at 4.2%. Morgan Stanley US economist Sam Coffin noted the labor market’s solid foundation while acknowledging the slowdown in employment growth and overall cooling observed in 2024. He expressed optimism that the softening is not as abrupt as witnessed last summer. Current market expectations, as indicated by the CME FedWatch Tool, assign only an 11% probability to a rate cut at the Fed’s January meeting.
Tech Sector in Focus at CES
The Consumer Electronics Show (CES) commences this week, featuring a keynote address by Nvidia CEO Jensen Huang on Monday and an analyst Q&A session on Tuesday. Nvidia’s stock has dipped more than 1% since its November 20th earnings announcement, attributed to concerns surrounding delays in shipments of its new Blackwell chip. Despite this recent setback, Nvidia shares still concluded 2024 with an impressive gain exceeding 150%.
Bank of America analyst Vivek Arya attributed Nvidia’s recent stock decline to broader market trends and company-specific challenges. He cited a rotation of investment capital from semiconductors to software, the latter perceived as less vulnerable to US-China trade restrictions. Arya also highlighted Nvidia’s “growing pains” associated with the transition from its Hopper product generation to the new generation.
Santa Claus Rally Fails to Materialize
The traditional “Santa Claus rally,” a historically strong seven-day period for the S&P 500 starting on December 24th, failed to deliver gains this year. Since 1950, the S&P 500 has averaged a 1.3% increase during this period. However, this year saw a decline of approximately 0.5%. LPL Financial chief technical strategist Adam Turnquist noted that a negative return during this timeframe often foreshadows a weaker year for stocks. However, it’s important to note that last year also lacked a Santa Claus rally, yet the S&P 500 still achieved a substantial 24% gain in 2025.
Callie Cox, chief market strategist at Ritholtz Wealth Management, cautioned against overemphasizing seasonal patterns, emphasizing the limitations of using the absence of a Santa Claus rally as a predictor of future market performance. Piper Sandler chief markets strategist Michael Kantrowitz suggests that softer employment data, potentially leading to lower interest rates, could provide a catalyst for renewed equity market momentum.
Economic Calendar and Earnings Releases
This week’s economic calendar includes key releases such as the ISM Services Index, ADP Private Payrolls report, and the FOMC December meeting minutes. Earnings reports are expected from several companies, including Constellation Brands, Delta Air Lines, and Walgreens Boots Alliance. Thursday will observe a market closure in honor of former President Jimmy Carter. The full weekly calendar with specific dates and times for data releases and earnings announcements is available from various financial news sources.
Conclusion: Navigating Uncertainty in Early 2025
The US stock market begins 2025 facing headwinds from recent declines and uncertainty surrounding the labor market and interest rate environment. The upcoming December jobs report will be a pivotal data point for investors and policymakers alike, providing crucial insights into the health of the economy and potentially influencing the Federal Reserve’s future policy decisions. While the absence of a Santa Claus rally raises concerns, historical data suggests it’s not a definitive indicator of future market performance. Investors will continue to monitor economic data, corporate earnings, and developments in the tech sector for signals that could shape market direction in the coming weeks and months.
