Introduction to the New Year’s Stock Market

The first full trading week of 2026 is expected to be a significant one for the U.S. stock market, with various economic data releases and events that could potentially shake the market out of its winter holiday slumber. The monthly jobs data, in particular, is highly anticipated and could set the tone for the market’s direction in the coming weeks.

Recent Market Performance

The S&P 500 index ended 2025 on a low note, with a monthly loss in December. However, the index still managed to climb over 16% for the year, marking its third consecutive year of double-digit percentage gains. The Cboe Volatility index also remained near its lows for the year, indicating a relatively stable market. Despite the thin trading volumes at the end of 2025, the new year is expected to get off to an eventful start, with investors eagerly awaiting key economic data, a U.S. Supreme Court decision on President Donald Trump’s tariffs, and the selection of a new Federal Reserve chair.

Market Direction and Investor Sentiment

The S&P 500 is currently near record highs but has been trading in a range since late October. According to Matthew Maley, chief market strategist at Miller Tabak, "The market is looking for direction. 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." This sentiment is shared by many investors, who are waiting for a catalyst to drive the market forward.

Job Data and Rate Signals

The employment data scheduled for release on January 9 could provide the much-needed jolt to the market. The data could influence the Federal Reserve’s decision on interest rates, which have been lowered at each of the last three meetings of 2025. While lower rates have supported equities, the extent of further cuts in 2026 is unclear. Fed officials are divided on the path for monetary policy, and inflation remains above the Fed’s 2% annual target. Eric Kuby, chief investment officer at North Star Investment Management, notes that "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."

Employment Expectations

The employment report for December is expected to show an increase of 55,000 jobs, according to a Reuters poll. This is slightly lower than the 64,000 jobs added in November, and the unemployment rate is at a four-year high of 4.6%. A weak report could signal more severe economic concerns than markets currently anticipate, while a strong report could lead to increased confidence in the economy.

Inflation and Q4 Earnings

In addition to the job data, other key economic releases in the coming week include manufacturing and services sector activity, job openings, and labor market data. The monthly U.S. consumer price index, a closely watched report on inflation trends, is scheduled for release on January 13. Scott Wren, senior global market strategist at Wells Fargo Investment Institute, notes that "anything that has to do with underlying economic activity and inflation is really going to catch the market’s attention." The fourth-quarter earnings season is also around the corner, with major banks such as JPMorgan set to report on January 13.

Earnings Expectations

Investors are banking on strong earnings growth to justify the current lofty valuations of stocks. Overall S&P 500 company earnings are expected to have climbed 13% in 2025, with another 15.5% rise expected in 2026. Nicholas Colas, co-founder of DataTrek Research, notes that "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."

Conclusion

The first full trading week of 2026 is expected to be a pivotal one for the U.S. stock market, with various economic data releases and events that could drive the market’s direction. The job data, inflation trends, and Q4 earnings will be closely watched by investors, who are looking for signs of economic growth and stability. As the market navigates these challenges, it is essential for investors to remain informed and adaptable to changing market conditions.