Markets Enter the Year on Solid Ground as Growth, Labor, and Housing Signals Diverge

Matthew Rubin Chief Investment Officer

 

1. Stocks advanced last week, but upcoming earnings and inflation data may challenge the market’s calm start to the year.
2. Job growth cooled again last week, reinforcing a steady yet subdued labor market backdrop.
3. Mortgage rates edged higher last week but remained near their 2025 lows, offering modest relief to homebuyers.

 

1. Early Gains Face Volatility Tests Ahead

U.S. stocks began 2026 with solid gains, riding momentum from a strong finish to 2025. The S&P 500 rose over 1.5% month-to-date, following its third consecutive year of double-digit returns.¹ Equity performance remained resilient despite an unsettled global backdrop, with investors largely focused on fundamentals rather than headline risk.

Expectations of healthy corporate profit growth, an easing monetary policy environment, and fiscal support continue to support markets, sustaining a bull market now entering its fourth year. At the same time, the quiet tone in markets may be understating potential sources of near-term volatility. Developments abroad added to uncertainty, but U.S. equities showed limited response relative to traditional safe-haven assets, including gold, which reportedly saw a strong resurgence in 2025.

Measures of market volatility edged slightly higher last week but remained near the low end of their recent ranges, suggesting investor complacency remains intact.¹ With many asset prices reflecting optimistic assumptions, some investors appear more attentive to risk management. As January progresses, attention is likely to shift toward events that could disrupt this calm, including corporate earnings releases and key economic data that may reset expectations for growth and inflation.¹

2. Hiring Slows Further as Labor Market Remains Stable

U.S. job growth slowed further last week, closing out a year marked by weaker hiring momentum. Payrolls increased by 50,000 in December, below recent averages, while the unemployment rate edged down to 4.4%.² Revisions to prior months showed fewer jobs were added earlier in the fall than previously reported, underscoring the gradual loss of momentum that developed through the second half of the year.

Overall, payroll employment rose by roughly 584,000 in 2025, a sharp step down from the pace seen the year before.² Average monthly gains were modest, reflecting a labor market characterized by limited hiring and layoffs. Job growth in December was concentrated in healthcare and leisure and hospitality, while retail, transportation, and warehousing posted declines.² This uneven pattern was consistent with trends seen throughout much of the year.

Other indicators pointed to softer labor demand. Job openings declined meaningfully from a year earlier, while hiring and layoffs remained low.² Despite slower employment growth, broader economic activity held strong, supported by steady consumer spending, solid business investment, and improving productivity. Looking ahead, lower borrowing costs may provide some support for hiring, though uncertainty around costs and demand remains a key factor shaping employer decisions.

3. Mortgage Rates Hold Near Recent Lows Despite Slight Uptick

Average U.S. mortgage rates moved slightly higher last week but still hovered around recent lows. The average rate on a 30-year fixed mortgage rose to 6.16%, a small increase from the prior week and still near the lowest level since late 2024, according to Freddie Mac.³ Rates remained well below levels from a year earlier, helping to support affordability at the margin. Borrowing costs on 15-year fixed-rate mortgages also increased modestly, though they remained meaningfully lower than last year.³

Mortgage rates have been relatively stable in recent weeks, tracking movements in longer-term Treasury yields. The 10-year Treasury yield held near the mid-4% range, reinforcing the recent range-bound behavior in mortgage pricing.³ Expectations for easing inflation and slower economic growth have helped keep rates from moving sharply higher, even as day-to-day fluctuations persist.

Lower borrowing costs late last year improved purchasing power and contributed to firmer home sales in early autumn. However, momentum softened toward year-end, consistent with typical seasonal patterns, while affordability challenges remain significant.³ Recent rate declines have helped some buyers, but elevated home prices and economic uncertainty continue to limit broader housing market participation.

For the period ending 1/9/25.
* Small-cap stocks are represented by the Russell 2000^® Index. International stocks are represented by the MSCI EAFE. Bonds are represented by the Bloomberg US Aggregate Bond Index. Oil is represented by WTI Oil (West Texas Intermediate Oil), a benchmark for light, sweet crude oil and a primary measure for pricing oil contracts and futures in the U.S.

Sources
¹ Reuters
² U.S. Bureau of Labor Statistics
³ Freddie Mac

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