Stocks Closed Sharply Higher On Friday, Small-Caps And Mid-Caps Up For The Week For The Second Week In A Row Stocks closed higher across the board on Friday, led by the Nasdaq's 1.77% gain, followed by the small-cap Russell 2000's 1.65%, and the S&P 500's 1.26%. It was a great way to end the week. And while it wasn't enough for the big three indexes to notch a higher close for the week, it was enough for the Russell 2000 and mid-cap S&P 400 to close up for the week. That now makes it two up weeks in a row for those two indexes. But YTD (yes, I know it's only been 2 days), all of the indexes are in the green so far. In other news, Friday's ISM Manufacturing Index improved to 49.3 vs. last month's 48.4 and views for 48.5. The PMI Manufacturing Index came in at 49.4, slightly below last month's 49.7, but above estimates for 48.3. Construction Spending was flat at 0.0% m/m vs. last month's 0.5% and the consensus for 0.3%. The y/y change was up 3.0% vs. last month's 3.9%. And Weekly Jobless Claims fell -9,000 to 211,000 vs. expectations for 225,000. This week we have a full docket of economic reports to get thru. But the report everybody is really waiting for is Friday's (1/10), Employment Situation report. Given the Fed's dual mandate of price stability (low inflation) and maximum employment, the jobs report is an important piece of data in helping to shape the Fed's monetary policy. While progress on inflation has slowed recently (if not stalled), the last few jobs reports have been uneven. And the jobs report is looked at as a proxy for the economy. Last month's (November) came in well above expectations. But October's came in well below expectations. Granted, October's was skewed due to strikes and two hurricanes, which made gathering data difficult. But November's was skewed as well with bounce-back data from the hurricanes and the end of the strikes. So there's lots of interest in what the December jobs data will show. A report showing sharply higher job growth would likely suggest the Fed has time to pause their rate cuts, while a meaningful miss would suggest the economy may not be as strong as some think, including the Fed. That would suggest a pause in rate cuts is not necessary. The Fed is intent on guiding the economy into a soft landing, which is what they have done so far. But trouble on either of those dual mandates would complicate their task. After this week's Employment report comes next week's PPI and CPI inflation reports on Tuesday, 1/14 and Wednesday, 1/ 15. As it stands now, the Fed expects to cut rates by another 50 basis points this year. But the timing is unclear. And at the moment, Fed Funds traders, via the CME's FedWatch tool, have an 88.8% probability that the Fed will NOT cut rates at the conclusion of their next FOMC meeting on January 29. And as I mentioned last week, the new thing the market will soon obsess about is the new administration's tariffs. What will they look like? Who will get them? And what will that ultimately mean for the U.S economy? The debate is split on whether it will be inflationary or not. Either way, just know that will be talked about quite a bit in the new year. In the meantime, the new year is off to a solid start. The market will look to try and keep that going this week. See you tomorrow,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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