Weekly Market Recap: Labor Market Resilience, Earnings Ahead
Markets entered the week facing a rare convergence of macro catalysts: a closely watched employment report, the potential for a Supreme Court ruling on presidential tariff authority, and heightened attention on the Treasury market’s response. While legal and geopolitical headlines lingered in the background, the immediate takeaway was straightforward – the U.S. labor market remains more resilient than feared, helping stabilize sentiment and temper expectations for near-term Fed easing.
The Economy
The December Employment Situation report delivered a “better-than-feared” outcome that eased concerns about an abrupt economic slowdown. Nonfarm payrolls rose by 50,000, roughly in line with expectations, while the unemployment rate declined to 4.4%, reinforcing the view that labor demand remains sufficient to support consumer spending. Wage growth remained firm at 3.8% year-over-year, providing continued income support even as hiring slows.
Beneath the surface, however, the report was mixed. Prior-month payrolls were revised lower, long-term unemployment increased, and the three-month average of job growth slipped into negative territory. Housing data – while dated – showed that weakness remained concentrated in multifamily construction, while single-family starts rose to their highest level since mid-year, suggesting demand remains intact where affordability allows.
The Federal Reserve
From a policy standpoint, the employment report reduces pressure on the Fed to act quickly. A low unemployment rate and steady wage growth support a patient, data-dependent approach rather than imminent easing. Treasury yields reflected this balance: the 2-year yield moved modestly higher, while the 10-year yield held steady, signaling confidence in the current growth and inflation trajectory. The bond market’s calm response suggested no immediate repricing of policy expectations.
Geopolitics & Global Backdrop
Attention remained fixed on the possibility of a Supreme Court ruling regarding presidential authority under IEEPA to impose tariffs – a decision with meaningful implications for trade policy, inflation, and corporate planning. Separately, energy markets monitored discussions between oil executives and the White House related to Venezuela. While no immediate market reaction materialized, these issues added a layer of headline risk that investors continue to monitor closely.
Fourth Quarter Earnings
As macro uncertainty simmers, earnings expectations have quietly become the market’s most critical variable. Fourth-quarter earnings growth for the S&P 500 is currently projected at 8.1%, up from late-September estimates, marking a rare instance in which forecasts have risen rather than fallen heading into reporting season. Technology is expected to drive the majority of growth, with financials and communication services also contributing meaningfully, while several cyclical sectors are forecasted to be modest drags.
Valuations leave little room for error. The S&P 500 is trading near 22.4x forward earnings, a meaningful premium to its long-term average. While earnings growth drove market gains in 2025, the supports that helped valuations – falling rates, deregulation, and policy tailwinds – are less certain heading into 2026. As a result, guidance will matter more than reported results, particularly for companies with elevated expectations and stock prices.
Banks will kick off earnings season next week and are widely expected to deliver solid results, supported by healthy credit conditions and strong capital markets activity. However, whether good results translate into positive price action – or prompt “sell-the-news” reactions – will depend on confidence in 2026 earnings growth, currently projected at a robust 15%, well above historical averages.
Week Ahead
The labor market remains resilient, the Fed remains patient, and the bond market remains calm – but equity valuations demand confirmation. With earnings expectations elevated and estimates still moving higher, the coming reporting season will test whether optimism is justified. In this environment, the direction of earnings revisions (not headlines) will determine how much risk the market can continue to absorb.
Outside of earnings excitement, this week will offer inflation data for December along with delayed producer inflation data from October and November.
As always, please reach out to us for any questions and thank you for your trust.
Respectfully,
Michael Neill, CFA