Stocks just had their best month of the year, but the rally could lose momentum depending on what a key jobs report shows.
The November jobs report, scheduled for release on Friday, highlights a week of economic data that includes key updates on service sector activity as well as the latest numbers on job vacancies and consumer sentiment.
The Federal Reserve will enter its rest period before its next meeting, which begins on December 12th.
On the earnings side, results from JM Smucker (SJM), GameStop (GME), Lululemon (LULU), Dollar General (DG) and Broadcom (AVGO) will highlight a week of quarterly reports.
Stocks entered the first full week of December after completing their first successful month since July. In November, the Nasdaq Composite (^IXIC) rose 10.7%, while the S&P 500 (^GSPC) rose 8.9% and the Dow Jones Industrial Average (^DJI) rose about 8.8%.
Investors will be watching for further signs of a slowdown in the labor market when the jobs report is released on Friday. A report showing job growth but not exceedingly above expectations adds to growing sentiment that the Fed’s rate-hiking campaign could end in a “soft landing” in which inflation returns to 2% without a major downturn in economic activity .
After a weaker-than-expected result in October, largely due to strikes by the United Auto Workers, economists are forecasting a rise in job creation in November.
The November jobs report is expected to show that unemployment added 200,000 non-farm jobs to the U.S. economy last month According to Bloomberg data, the rate remains unchanged at 3.9%. In October, the US economy added 150,000 jobs while the unemployment rate reached its highest level since January 2022.
“We expect slowing labor demand to remain an issue going forward,” Wells Fargo’s team of economists, led by Jay Bryson, wrote in a note on Friday. “Still, the end of the UAW and Hollywood actor strikes is expected to increase the number of workers by nearly 45,000 in November. Additionally, a relatively late survey week should help capture more vacation hiring than in previous years, supporting seasonally adjusted gains. We estimate employers added 230,000 new jobs during the month.”
The story goes on
For investors, this pressure will be crucial in reinforcing or disproving recent market sentiment that the Fed is done raising rates and could even cut rates sooner than many expected.
The Fed tried to temper those expectations on Friday.
“It would be premature to conclude with confidence that we have reached a sufficiently hawkish stance, or to speculate about when monetary policy might be eased,” Fed Chairman Jerome Powell said in prepared remarks at Spelman College on Friday Atlanta.
The comments initially shocked markets as stock prices fell in the minutes after the speech began, but all three major averages eventually ended Friday’s trading day in the green. Market expectations of Fed policy have also hardly changed.
As of Friday afternoon, markets had priced in about a 64% chance that the Fed would cut interest rates by the end of its March meeting, compared with a 21% chance just a week earlier, according to the CME FedWatch tool.
“The jobs reports are very important, that’s probably the most important thing we have on our calendar between now and the end of the year,” Callie Cox, U.S. investment analyst at eToro, told Yahoo Finance. “And a continuation of the trends we’ve seen in the labor market would be a good thing because that would show that the Fed is maintaining a healthy labor market while reducing inflation.”
“What you don’t want to see is a rapid rise in unemployment and a rapid decline in hiring. They don’t want to experience sudden changes.”
An excavator works on the grounds of SoFi Stadium, home of the Los Angeles Rams and Chargers, in Inglewood, Los Angeles, California, U.S., January 13, 2016. Portal/Lucy Nicholson (Lucy Nicholson / Portal)
With the Fed in a dovish phase, economic data will likely be the main driver for stocks next week as corporate earnings season comes to an end. However, some reports could help investors gauge investor risk tolerance in certain areas of the market.
On Wednesday, GameStop and C3.ai (AI) will report their results. The two stocks have been popular momentum trades this year. GameStop recently rose over 20% in a single trading session. Meanwhile, C3.ai has benefited from the AI hype, increasing its share price by about 175% this year.
Both unprofitable companies saw their stocks soar in November as investors reverted to a risk-on mantra and bought up some of the names hit hardest during the fall selloff.
By and large, many strategists have not sounded the alarm that the current market plunge is overbought.
“Despite growing expectations of a soft landing, we are still far from a market environment dominated by high conviction and euphoria,” wrote Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America.
Weekly calendar
Monday
Merits: GitLab (GTLB)
Economic data: Factory Orders, October (-2.7% expected, 2.8% prior); Durable goods orders, October final (-5.4% expected, -5.4% previous)
Tuesday
Merits: Asana (ASAN), Autozone (AZO), Box (BOX), Dave & Buster’s (PLAY), Designer Brands (DBI), JM Smucker (SJM), mongoDB (MDB), Nio (NIO), Signet Jewlers (SIG), Stitch Fix (SFIX), Toll Brothers (TOL)
Economic data: S&P Global US Services PMI, November, final (previously 50.8); S&P Global US Composite PMI, November, final (previously 50.7); ISM Services, November (52.5 expected, 51.8 expected); JOLTS job openings, October (9.38 million expected, 9.55 million previous);
Wednesday
Merits: Campbell Soup (CPB), Chargepoint (CHPT), Chewy (CHWY), C3ai (AI), Duckhorn (NAPA), GameStop (GME), Lovesac (LOVE), Vera Bradley (VRA)
Economic data: MBA Mortgage Applications, Week Ending December 1 (+0.3% Previous); ADP employment change, November (120,000 expected, 113,000 so far)
Thursday
Merits: Broadcom (AVGO), DocuSign (DOCU), Dollar General (DG), Lululemon (LULU), RH (RH), Vail Resorts (VAIL)
Economic data: Challenger job cuts year-over-year, November (+8.8% previous); Weekly Initial Jobless Claims, December 2 (221,000 expected, 218,000 so far)
Friday
Merits: No significant income
Economic data: Non-farm payrolls, November (+200,000 expected, +150,000 expected); Unemployment rate, November (+3.9% expected, previously 3.9%); Average hourly wage month-on-month, November (+0.3% expected, +0.2% previous); Average hourly wage year-on-year, November (+4.0% expected, +4.1% so far); Average weekly hours worked, November (34.4 expected, 34.4 previous); Labor force participation rate, November (previously 62.7%); Consumer sentiment in the U. of Michigan, preliminary in December (61.9 expected, 61.3 previous)
Josh Schafer is a reporter for Yahoo Finance.
Click here for the latest stock market news and in-depth analysis, including stock-moving events
Read the latest financial and business news from Yahoo Finance