US Jobs Report: Stocks at Risk if NFP Data Keeps the Fed on Hold
US Jobs Report: Stocks at Risk if NFP Data Keeps the Fed on Hold
By:Ilya Spivak
Stocks may stumble while the dollar gains if US jobs data leaves markets and the Fed at odds on rate cuts.
- December’s US jobs data is in focus amid swirling Fed rate cut speculation
- After adjusting for overcounting, forecasts imply stalling payrolls growth
- Stocks at risk, US dollar may rise if the data cools the markets’ dovish hopes
It is decision time for stock markets as traders brace for the arrival of critical US employment data. The debate about the path for Federal Reserve monetary policy remains unsettled, with central bank officials and market participants still at odds about what comes next. The jobs numbers will be parsed for clues about which side is closer to the mark.
Economists’ median forecasts point to a nonfarm payrolls rise of 60,000 in December, a whisker lower than the 64,000 recorded in the prior month. Fed Chair Jerome Powell has flagged overcounting of about 60k per month in the data. Applying that, a flat result last month is seen following a 4k rise in November.
All eyes on December US labor market data
The unemployment rate is expected to tick down to 4.5% from a four-year high of 4.6% previously. Nevertheless, this would still be the second-highest reading since October 2021. A pickup in wage growth is also on the menu. Average hourly earnings growth is seen ticking higher to 3.6% year-on-year, marking the first increase since July.
As it stands, the markets seem convinced that the central bank will remain on hold this month. The probability of a 25-basis-point (bps) rate cut at January gathering of the Federal Open Market Committee (FOMC) is priced in at just 11.6% in benchmark Fed Funds futures.
However, traders have discounted two such cuts this year, with the first expected to appear in April and the second no later than September. For their part, Fed officials have only committed to a single cut in their Summary of Economic Projections (SEP). They’ve stuck to this view since June last year, reaffirming it in September and December.
Stocks may fall if Fed rate cuts seem delayed after jobs report
Speaking at the press conference following last month’s FOMC conclave, Powell reckoned that his calculus amounted to a monthly average of about 40k in job losses. This seems to emphasize the second half of 2025, where job creation slowed compared with the first six months of the year.
That is heavily skewed by October’s 105k in reported job losses – a hefty 165k drop after the overcounting haircut – coming amid the record-setting 43-day US government shutdown. A net 4k payrolls rise between November and December would make for a weak rebound but still look better than Powell’s trend average.
With that in mind, the report may disappoint traders hoping that it will impress upon the US central bank a sense of urgency and push it closer to the markets’ dovish wishes. A surge in service-sector hiring on view in data from the Institute of Supply Management (ISM) might even foreshadow an upside surprise, amplifying the effect.
Such a result may bode ill for stock markets as sentiment sours. Weaker risk appetite might weigh on bitcoin too. On the other hand, the US dollar may rise, supported by haven-seeking flows. The currency may get a further push if the data is potent enough to force yields higher. That might also nudge gold prices lower.
Ilya Spivak, tastylive head of global macro, has over 15 years of experience in trading strategy, and he specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak
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