Employment Data Tests Global Stock Markets
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The global stock market is on the brink of what could be its most severe test since the beginning of the yearInvestors are eagerly awaiting the upcoming U.S. employment report, hoping to extract signals that the economy is healthy but not overheatedSuch insights would serve as crucial support for their optimistic expectations of a sustained upward trend in the market throughout 2025.
Looking back, the stock market experienced extreme volatility from late December to early January, resembling a roller coasterUltimately, it began to stabilize amidst a year-end frenzyNotably, the S&P 500 recorded an impressive 23% annual growth rate for 2024, marking the highest annual increase since 1997-1998. This remarkable gain reflects a strong recovery trend within the marketHowever, whether the stock market can build on this momentum and achieve a triumphant three-year rise largely hinges on the overall economic situation, particularly the labor market data, which is often viewed as a barometer for economic health.
Last month, the Federal Reserve unexpectedly lowered its forecast for interest rate cuts in 2025, creating a shockwave across the marketsThis surprising adjustment has amplified investors’ urgency to grasp the Fed's true intentions regarding its interest rate policyAnthony Saglimbene, Chief Market Strategist at Ameriprise Financial, commented, "Investors generally anticipate further confirmation of a robust labor market trend as it indicates an optimistic economic outlookHowever, any data slightly below expectations could trigger extreme market fluctuations."
There is a growing sense of optimism among investors regarding the U.S. economy, akin to a wildfire spreading rapidlyA survey conducted by Natixis Investment Managers at the end of last year revealed a significant finding: 73% of institutional investors firmly believe that the U.S. can deftly avoid the shadow of a recession in 2025 and sustain robust economic growth
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Nevertheless, the recent trajectory of the U.S. economy has been far from smoothStrikes within the aerospace sector have caused production shutdowns, while natural disasters such as hurricanes have dealt blows to the economy in affected areasThese factors have combined to create substantial fluctuations in labor market dataDespite facing numerous challenges, the employment figures for November surprised the market by showing a growth of 227,000 jobs, a stark rebound compared to the meager increase observed in OctoberThis data undoubtedly injected a dose of confidence into the market, bolstering investor sentiments about the future economic landscape.
Analysts at Capital Economics recently provided a deep-dive analysis of the U.S. job market, pointing out that the average job growth number over the past three months has only been 138,000. This statistic clearly indicates that the pace of hiring is gradually slowing downIn stark contrast to November's surge of 227,000 jobs, it underscores the instability in employment market growth ratesA Reuters survey of economists has drawn attention as well, predicting that the pivotal December non-farm payroll report, set to be released on January 10, will reveal an increase of 150,000 jobs, while the unemployment rate is expected to hold steady at 4.2%. This prediction reflects economists' collective judgment regarding the current state of the U.S. economy and labor market, providing critical insights for investors and market participants, all of whom are anxiously anticipating the report to glean more clues about the direction of the U.S. economy.
Angelo Kourkafas, a senior investment strategist at Edward Jones, emphasized, "Following two consecutive reports, this upcoming employment report is poised to clearly reveal the underlying trends within the labor market." Moreover, investors will be closely monitoring the employment report for signs of potential overheating in the economy since the resurgence of inflation is regarded as one of the major risks facing the market at the onset of the year
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