The clock is running out for investors looking to make last-ditch moves before the calendar flips to the new year.
This week, the stakes are high as a barrage of delayed economic data, coupled with a marketwide index rebalance, threaten to stir up volatility.
For investors, it may feel like the final moment to decide if 2025 will finish with cheers or tears — though market veterans caution the worst move to make could be moving too quickly.
“For the market, the jobs data is really going to be the biggest focus for [the] week,” said Tony Rodriguez, head of fixed-income strategy at Nuveen. “If you see the unemployment rate accelerate more quickly to rise above 4.5%, that would be a driver for lower rates in 2026, both in terms of Fed expectations and market pricing along the Treasury curve.”
This week will deliver the November jobs report and a key inflation reading that could either support or challenge the Federal Reserve’s interest-rate outlook for the new year.
Fed officials last week cut interest rates for the third straight meeting, while signaling an openness to one cut next year, as rates get closer to a neutral level. The central bank’s updated Summary of Economic Projections reflected a 4.5% unemployment rate for the end of this year, but a decline to 4.4% in 2026 and 4.2% in 2027. The most recent data from the government pegged the rate at 4.4% in September, a four-year high.
Will the stock rotation last?
An improving outlook for the economy — and a good amount of trepidation about several high-flying AI plays — has been fueling a rally into parts of the stock market that could benefit from an economic upswing and lower borrowing costs.
Yet while the Fed wields control over short-term rates, longer-term borrowing costs like 30-year mortgage rates hinge on longer-duration Treasury yields, which remain elevated.
Anthony Saglimbene, chief market strategist at Ameriprise Financial, said a weaker-than-expected November jobs report could increase market expectations for a rate cut at the next Fed meeting in January. But it’s still unlikely to change the central bank’s current “patient policy stance,” he added. That could mean a pause on rate cuts to better gauge the next steps for the economy, since recent activity suggests it has been expanding at a moderate pace.
Also, the thick fog around economic data since this fall’s U.S. government shutdown has begun to lift. The readings on deck for this week will be backward-looking, and that could mean investors take them with a grain of salt.
“We’ve been flying blind here without some of the government-provided macro data, but the other data that’s available all pointed to a growth story in 2026, which is still somewhat muted but stronger than this year,” Nuveen’s Rodriguez told MarketWatch in a phone interview.
“Unless that narrative gets derailed by the actual data, you’re going to see the Fed being less of a factor in the markets, because they’ll merely be calibrating next year to whatever their ultimate conclusion is about the neutral rate,” he added.
Inflation data on tap
This week also brings the November consumer-price index report, which is expected to show inflation rising 3.1% from a year earlier, according to economists polled by the Wall Street Journal.
The Bureau of Labor Statistics previously said it wouldn’t produce a CPI report for October due to the government shutdown, while the November CPI was pushed back to Dec. 18 from Dec. 10 — more than a week after the Fed’s December policy meeting.
Neil Sutherland, portfolio manager of U.S. multisector fixed income at Schroders, said investors will be “less concerned about the inflation outlook” this week, as the Fed’s bias has clearly moved away from an emphasis on inflation and toward the labor market.
“If I’m looking at structural drivers of inflation over the next three to six months — from housing to energy to wages — I would be less concerned about the inflation outlook, certainly in the short term,” he told MarketWatch.
Liquidity in focus
Farzin Azarm, managing director of equity trading at Mizuho Securities USA, said the most important market event this week is what he describes as “one of the biggest liquidation events of the year.”
Specifically, the quarterly index rebalance of the S&P 500 and Nasdaq-100 hits on Friday, during which index providers such as S&P Dow Jones Indices and Nasdaq adjust their benchmark indexes’ composition and weights to ensure they continue to represent the markets they track.
“Every major long-only trader will use that liquidity event to reshuffle their portfolios,” Azarm said. “A lot of the bigger funds have already positioned themselves before this week, and then at the end of the week they’re going to put their orders in.”
Changes to the indexes will be effective before the market opens on Monday, Dec. 22, to coincide with the quarterly rebalance, according to a statement from S&P Dow Jones Indices.
Yet for investors considering any last-minute “window dressing” to spruce up their portfolios before liquidity tends to dry up during the year-end holiday period, Sutherland of Schroders said that’s not a good idea.
“You should only change your portfolios if there’s something fundamental, or on an evaluation basis that has changed — not just trading for the sake of trading,” he said.
Saglimbene of Ameriprise suggested investors adjust their portfolios and return to a more “neutral” stance before 2026, balancing their equity exposure between riskier assets and more defensive areas of the stock market.
“What we’re seeing now late in the year, and probably in the next year, is there’s more room for rotation,” he said. “There’s more [room] for other industries to participate in what is likely to be a still growing economy and where interest rates could come down a little bit.”
U.S. stocks finished sharply lower on Friday. For the week, the S&P 500 fell 0.6%, while the Nasdaq Composite tumbled 1.6%. The Dow Jones Industrial Average, however, gained 1.1% for the week, according to FactSet data.
