The broader benchmark S&P 500 (^GSPC 0.09%) index is up roughly 4.6% since election night on Nov. 5. Investors appear to be bullish on President-Elect Donald Trump, and on an economy that's held up better than expected and that could be poised to grow further in 2025. Wall Street strategists have revised their estimates higher for 2025, and it seems like the market can do no wrong.
However, a lot can change quickly -- for better or worse. Economic data over the coming months could play a big role in determining how the market performs in the near term and in 2025. Here's why tomorrow could be a big day for the stock market.
November jobs will affect the trajectory of the Fed
On the first Friday of each month, the U.S. Bureau of Labor Statistics (BLS) releases the nonfarm payroll report for the month that just concluded. The November jobs report will come out tomorrow at 8:30 a.m. EST. The jobs report shows how many jobs the U.S. economy added in the prior month, the unemployment rate, and other important statistics like wage growth.
Remember, consumer spending accounts for almost 70% of the U.S. economy and has been accelerating lately. The health of the consumer is vital to the U.S. economy, and the labor market is a key driver of the consumer. Here's where things stand on unemployment.
U.S. Unemployment Rate data by YCharts.
Unemployment has bounced off historic lows this year, but recently trended lower. This has confused many economists and investors who expected unemployment to keep rising. The U.S. economy is healthy right now, but it's also in a weird place. Investors usually cheer for a healthy economy, and they have in most regards, driving the S&P 500 to new highs on dozens of occasions this year. However, part of this climb can be attributed to the Federal Reserve's decision to begin lowering its benchmark federal funds rate after two years of intense interest rate hikes.
The Fed could stop lowering rates or lower them less often if the economy remains strong because the agency doesn't want to risk reigniting inflation. The Fed is monitoring economic data carefully, and tomorrow's jobs report will be another big clue as to how the Fed will act at its upcoming meeting on Dec. 17-18.
As of Dec. 2, 65% of traders buying futures on the federal funds rate think the Fed will lower rates another quarter point at its next meeting. Roughly 29% of these traders also believe the federal funds rate will fall another 75 basis points by the end of 2025. These percentages change daily. New labor market data could change the outlook for the federal funds rate, which could move the market significantly one way or the other.
What to look for
Economists polled by FactSet expect the U.S. economy to have added 200,000 jobs in November and for the unemployment rate to rise 0.1% from October to 4.2%. Meanwhile, hourly wages are projected to be up 3.9% year over year, a slight decline from October's increase. If the economy adds more jobs than expected and the unemployment rate holds steady or declines, traders will likely pare back their expectations for the Fed's rate cuts, because that data would reflect a strong economy. The market may not respond positively to this because most investors would like a lower-interest-rate environment, which typically creates a more favorable environment for riskier assets.
However, if jobs come in well below expectations and unemployment much higher than expected, the market may panic and sell off, as it did after the July jobs report. It's a tight needle to thread, which is why I do not recommend trying to trade on this report -- you never know how the market will react. My best guess is that a slight uptick in the unemployment rate and adding slightly fewer jobs than expected will show a weaker labor market, but not an economy on the precipice of recession. This could lead investors to bet on further Fed cuts, which could move the market higher.
Long-term investors needn't do much. However, it's important to be aware of potential big moves in the market so you can remain calm and ultimately make better investing decisions -- even if that means doing nothing at all.
