The first full trading week of 2026 promises to jolt the U.S. stock market out of its holiday calm as investors await key economic data, corporate earnings, and other market-moving events. After a quiet holiday season, attention is turning to employment figures, inflation trends, and corporate performance that could set the tone for the year ahead.

Year-End Market Performance

Stocks ended 2025 on a slightly soft note, with the S&P 500 finishing the final session of the year lower and posting a monthly loss for December. However, the index still recorded a 16% gain for the year, marking its third consecutive year of double-digit returns. Meanwhile, the Cboe Volatility Index (VIX) remained near annual lows, reflecting calm investor sentiment heading into 2026.

Trading volumes were thin at the end of December, but early January is expected to bring more action. Analysts note that while the S&P 500 is near record highs, it is trading around the same levels as late October, signaling a period of consolidation.

“The market is looking for direction,” said Matthew Maley, chief market strategist at Miller Tabak. “We break out of these ranges and that’s going to give either people a lot of confidence or a lot of concern depending on which way it breaks.”

Employment Data Could Be a Market Catalyst

Investors are closely watching the upcoming U.S. jobs report on January 9, which could provide a significant market jolt. Weakness in the labor market prompted the Federal Reserve to lower interest rates at its last three meetings of 2025, balancing its goals of full employment and contained inflation.

Current expectations suggest employment may have increased by 55,000 jobs in December, slightly below November’s 64,000 gain, while the unemployment rate remained at 4.6%, its highest in over four years.

“If employment starts turning down in any kind of meaningful way, that’s going to signal that the recession is a lot closer than people think,” said Maley.

The labor data could influence the Fed’s next moves. With the benchmark rate at 3.5%-3.75%, futures markets anticipate little chance of a rate cut in late January but see nearly a 50% chance of a quarter-point reduction in March.

“The softening labor market has given the Fed good cover to change their outlook about reducing rates,” noted Eric Kuby, chief investment officer at North Star Investment Management.

Inflation and Corporate Earnings

Other economic indicators in the coming week include manufacturing and services sector data, job openings, and additional labor market reports. Inflation remains a key focus, with the monthly U.S. Consumer Price Index (CPI) due on January 13.

“Anything that has to do with underlying economic activity and inflation is really going to catch the market’s attention,” said Scott Wren, senior global market strategist at Wells Fargo Investment Institute. He added that the current environment of modest economic growth and moderating inflation is generally favorable for stocks.

Investors are also gearing up for fourth-quarter earnings season, with JPMorgan (JPM) reporting results on January 13, followed by other major banks. Overall, S&P 500 company earnings are expected to have risen 13% in 2025, with an anticipated 15.5% increase in 2026, according to LSEG IBES data.

“To make an investment case for the S&P 500 at current levels, one must believe in a combination of strong earnings growth and continued investor confidence in economic conditions and macro policy,” said Nicholas Colas, co-founder of DataTrek Research.

What Investors Should Watch

Early 2026 will be defined by key developments in:

• Labor market trends and potential signals for recession or growth
• Federal Reserve policy on interest rates and inflation control
• Corporate earnings, particularly from banks and tech companies
• Market sentiment, with stocks trading at historically high valuations

With multiple factors converging, analysts expect the market to experience heightened volatility as investors digest new data and corporate performance.