As Wall Street gears up for the week ahead, investors are eager for the release of delayed data, which will shed light on the current state of the U.S. economy. The upcoming week promises a flurry of economic information that has been postponed due to a 43-day federal government shutdown. This data is anticipated to provide key insights into employment trends, inflation rates, and other economic indicators, guiding market trends as we approach the year-end.
Impact of AI Trade on Stock Market
The week ended on a subdued note for U.S. stocks, following record highs for the benchmark S&P 500 on Thursday. The market momentum was dampened by disappointing quarterly reports from Oracle and Broadcom, two major players in the artificial intelligence trade that has been a driving force in the market this year. The less-than-expected performance from these tech giants weighed heavily on the technology sector.
Awaiting Crucial Economic Data
The upcoming release of the U.S. jobs report for November and the monthly consumer price index, which monitors inflation trends, is expected to provide much-needed clarity for investors. The lack of recent data due to the government shutdown has left investors and the Federal Reserve navigating uncertain waters.
Role of Federal Reserve and Anticipated Rate Cuts
According to Jim Baird, chief investment officer with Plante Moran Financial Advisors, “Strong corporate earnings certainly helped to support the markets. The Fed and anticipated rate cuts helped to provide a little bit of a boost. But now it’s time to turn our attention back to the underlying economy and what path we’re on”. The Federal Reserve made a third consecutive quarter-point cut in interest rates on Wednesday in an effort to bolster the weakening labor market. However, it signaled that further cuts in borrowing costs may not be imminent as it awaits more economic clarity.
Three Months of Labor and Inflation Data
David Seif, chief economist for developed markets at Nomura, pointed out that “Because of the government shutdown and the catch-up schedule, we have essentially three months of both labor and inflation data coming out between the December and January Fed meetings”. The U.S. payrolls are anticipated to show a modest increase of 35,000 in November, based on a Reuters poll. However, the actual figures might paint a different picture, potentially leading to discussions of an economic recession.
Inflation Above Fed’s Target
The monthly CPI data is being closely watched as inflation continues to exceed the Fed’s target. This could pose challenges for any further easing by the Fed if inflation does not subside. The decision to lower rates was not unanimous, with three policymakers advocating for unchanged rates. Morgan Stanley economists, in a note on Thursday, said “We continue to expect further cuts in January and April, but if the labor market stabilizes, then future cuts may not come until inflation decelerates”.
Other Key Economic Indicators
Alongside the jobs report and CPI data, a report on retail sales is also due next week, which will offer more insight into economic growth. The quarterly report from Micron Technology could also come under scrutiny following the turbulence in the AI sector this week. The S&P 500 is up 16% so far in 2025, marking a 90% gain since the bull market began in October 2022. December is traditionally a positive month for stocks, but investors might look to secure year-to-date profits, potentially leading to selling pressure.
Impact on Risk Assets
Marvin Loh, senior global macro strategist at State Street, noted that “For the most part, it’s been a very, very good year for risk assets. If you get some shaky numbers or you don’t get a resounding reason to add risk, it could add volatility in the market just because of the thinner markets”. The approaching holidays are expected to reduce trading volumes, which could lead to exaggerated asset-price moves.
As such, the upcoming week promises to be an eventful one on Wall Street, with key economic data set to provide a clearer picture of the U.S. economy’s path forward.
