By Martin Baccardax
Investors navigated two key near-term risks Friday, including a mixed report on the domestic job market and the likely delay of a Supreme Court ruling on tariffs. They are now likely to focus on next week's start of the fourth-quarter earnings season to consolidate the market's solid start to the year.
Employers added a net new 50,000 jobs to the economy last month, according to the Bureau of Labor Statistics. It's a smaller tally than forecast by Wall Street but still a positive reading for a weakening labor market that has added the fewest new hires since 2003 over the past year.
The headline unemployment rate also eased to 4.4% from 4.6%, although that might suggest further evidence of the "no hire, no fire" conditions in the job market rather than a sign of better trends over the near term.
And that is likely to keep the Federal Reserve from changing the pace of its expected path for interest rates, which forecasts just one quarter point reduction for the year. Market pricing suggests traders are betting on at least two.
"The Fed is rightly concerned that inflation is taking a long time to get down to their 2% target, but they should be more concerned about supporting the labor market, which is why they need to keep cutting interest rates," said Chris Zaccarelli, CIO for Northlight Asset Management.
"The stock market is likely to remain cautiously optimistic this year, but upside will be capped until confidence in the underlying job market -- and therefore the longevity of this economic expansion -- comes back, " he added.
Corporate earnings are likely to be a key indicator of the U.S. growth story, with profit tallies from the final three months of last year expected to support government data showing stronger-than-expected GDP growth over the same time frame.
LSEG data suggests collective S&P 500 profits are expected to rise around 9% from the same period in 2024 to just over $601 billion. That would take the full-year growth rate to around 13.3%.
"The economy is in good shape to deliver decent earnings," said Joe Kalish, chief macro strategist at Ned Davis Research. "Subdued taxes should help keep after-tax margins near record levels and stocks rising."
Tech is still expected to deliver the lion's share, with the information technology and communications services sectors contributing around 40% of the expected $601 billion tally.
Heading into 2026, however, that figure is likely to recede in favor of big gains from the financial sector, as well as contributions from industrials, materials, and healthcare.
"With the macro backdrop remaining favorable amidst solid growth and a declining U.S. dollar, and with no signs of a slowing for the secular growers, and other sectors also stepping up," said Deutsche Bank strategists led by Binky Chadha.
"We also see nine of the 11 sectors posting positive growth in Q4, up from six in Q3, and two in Q2," he added.
Wall Street's biggest banks will be in focus next week, with JPMorgan, Citigroup, Bank of America, Morgan Stanley, Goldman Sachs and Wells Fargo all reporting December quarter updates.
The financials sector is expected to contribute around a fifth of the $601 billion in collective S&P 500 profits for the fourth quarter, with the overall tally of $111.4 billion rising around 7% from the same period in 2024.
Banks are also set to capitalize on the expected surge in corporate takeover activity, as well as the pipeline of new listings expected to hit the market later this year.
Overall dealmaking values topped $4.8 trillion last year, according to data from Dealogic, second only to the $5.6 trillion record set in 2021. Analysts see that figure being eclipsed this year, largely as a result of the influence of AI technologies.
"The 43-day government shutdown had some impact, but otherwise it was another solid quarter for capital markets, investment banking and fees from asset management and wealth advisory," said Macrae Sykes, portfolio manager at Gabelli Funds.
"Going forward into '26, we expect further strong growth in earnings due to tailwinds from U.S. economic growth, further acceleration in banking driven by announced M&A and IPOs and expansion of net interest income from a steeper yield curve and Fed rate cuts," he added.
Write to Martin Baccardax at martin.baccardax@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
January 09, 2026 12:03 ET (17:03 GMT)
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