Analysis of the Impact of U.S. Labor Market Resilience, Fed Rate Cut Path, and U.S. Stock Valuations

Based on the latest market data and research reports, I will systematically analyze for you the impact of U.S. labor market resilience on the Federal Reserve’s interest rate cut path and U.S. stock valuations.

---

According to the December 2025 Nonfarm Payroll Report from the U.S. Bureau of Labor Statistics [1]:

Indicator	Actual Value	Market Expectation	Previous Value
Nonfarm Payrolls Added	50,000	65,000	64,000
Unemployment Rate	4.4%	4.5%	4.6%

• Persistent downward revision pressure
  : Nonfarm payrolls added in October 2025 was revised down from a decrease of 105,000 to a decrease of 173,000; November’s figure was revised down from 64,000 to 56,000.
  Total downward revision for the two months is 76,000
  [1]

• Weak annual employment growth
  : Total employment increased by only 584,000 in 2025, which is the
  weakest growth since 2020
  [1]. Private sector employers added an average of 61,000 jobs per month, the weakest level since 2003

• Unexpected drop in unemployment rate
  : The unemployment rate fell to 4.4% in December, interrupting its upward trend, and
  Wall Street analysts believe this “closes the door to a Fed rate cut”
  [1]

The current U.S. labor market shows typical characteristics of “resilience”:

• Employers avoid large-scale layoffs
  : Despite reduced hiring intensity, enterprises have generally avoided large-scale layoff actions [2]

• Labor supply adjustment
  : The three-month moving average shrank by 22,000, partially reflecting factors of reduced labor supply [1]

• Wage growth pressure
  : The combination of falling unemployment and rising wages gives the Fed a stronger reason to “stand pat” in January [1]

---

According to CME FedWatch data (as of January 9, 2026) [1]:

Time Node	Maintain Interest Rates Unchanged	25bp Rate Cut	50bp Rate Cut
January FOMC Meeting	95%	5%	0%
Cumulative by March	69.1%	29.6%	1.4%
Full Year 2026	-	2 Cuts Expected	-

: “For us, the Fed is more focused on the unemployment rate, not the noise in the aggregate data. Whether the Fed cuts rates further will depend on the direction of the unemployment rate in the coming months.” [1]

:

• The Fed’s December 2025 dot plot shows that among 19 officials, 3 expect 1 interest rate hike in 2026, 4 expect no rate cuts, 4 expect 1 rate cut, and 8 expect more than 1 rate cut
• In the base case scenario, the Fed will still implement 2 rate cuts, with the lower bound of the federal funds target rate falling to around 3%
• The first rate cut is expected to be implemented in
  mid-2026

Factor	Direction of Impact	Explanation
Unemployment Rate Trend	Key Variable	Lower-than-expected figure closes the door to a January rate cut
Inflation Level	Inflation has stabilized	Core PCE is gradually declining
Neutral Interest Rate	Around 3%	Fed interest rates are close to the neutral range
White House Policy Intervention	Uncertainty	Need to monitor the impact of the Fed Chair transition

---

Indicator	Value	Historical Percentile
S&P 500 P/E	27.5x	Historical High Range
2026 Expected P/E	26.5x	Slightly Declining
VIX Volatility Index	14-15	Low Level, Indicating Stable Market Sentiment
S&P 500 Index	6,966	Record High

:

• Total return of 12% for the S&P 500 in 2026
• 12% growth in EPS (Earnings Per Share)
• “Stable long-term interest rates and earnings growth mean little change in valuations in 2026, but elevated valuation multiples cannot be ignored”

:

• Predicts approximately 15% return for the S&P 500
• Earnings growth is the main driver
• The U.S. economy remains resilient, with GDP growth of around 2%

1. Valuation Pressure Factors
   :
   • P/E multiple is at a historical high (27.5x)
   • Market concentration is at an all-time high (the market value of the top 10 tech stocks accounts for 53% of the S&P 500’s returns) [4]
   • If earnings fall short of expectations, high valuations amplify downside risks

2. Valuation Support Factors
   :
   • The Fed’s rate cut path is clear (2 rate cuts expected in 2026)
   • Improved liquidity conditions (the Fed has ended balance sheet reduction)
   • Robust earnings growth expectations (EPS +12%)

According to research from Guotai Haitong and Yuekai Securities [3]:

Scenario	S&P 500 Target	Drivers
Base Case Scenario	7,800-8,100	Earnings Growth + Stable Valuations
Bull Case Scenario	8,500+	Better-than-Expected Rate Cuts + AI-driven Growth
Bear Case Scenario	6,500-7,000	Earnings Shortfall + Valuation Contraction

---

1. Strengthened labor market resilience
   : The unemployment rate unexpectedly fell to 4.4% in December, indicating the U.S. labor market has strong resilience, with the “low hiring, low layoffs” pattern continuing

2. Extremely low probability of a Fed rate cut in January
   : The lower-than-expected unemployment rate has essentially dashed expectations of a January rate cut; the market expects the first rate cut to be implemented in
   mid-2026
   , with 2 rate cuts throughout the year

3. U.S. stock valuations are at a high level
   : The current P/E is around 27.5x, and 2026 earnings growth (+12%) is the main source of returns

4. Stable market sentiment
   : The VIX is at a low level of 14-15, and the three major indices (Dow Jones, S&P 500) have all hit record highs

Dimension	Recommendation
Interest Rate Path	Expectations of unchanged rates in the short term have strengthened; monitor the March FOMC meeting
Valuation Risk	In a high valuation environment, be vigilant against pullbacks caused by earnings falling short of expectations
Allocation Direction	Focus on sectors with high certainty of earnings growth, such as leading tech stocks
Risk Management	Maintain balanced allocation; monitor changes in market volatility

1. Data Volatility Risk
   : The impact of government shutdowns may continue to interfere with the interpretation of employment data
2. Policy Uncertainty
   : Risks from Fed Chair transition and White House policy intervention
3. Inflation Rebound Risk
   : Sustained wage growth may delay the timing of rate cuts
4. Valuation Pullback Risk
   : In a high valuation environment, any negative news may be amplified

---

[1] Securities Times Network - “Door to Rate Cut Closed! Fed Expectations Shift Sharply! U.S. Key Data Released” (https://www.stcn.com/article/detail/3584662.html)

[2] China Fund News - “The Probability of a Fed Rate Cut This Month is Almost Zero” (https://www.chnfund.com/article/AR9c8b6ca1-6aa2-e84d-f1f2-3a1eb57665cd)

[3] Yuekai Securities Macro Research - “2026 Outlook: The Landscape and Impact of the Fed’s Rate Cut Path” (https://www.ykzq.com/products/download-new/rpt/2025/12/11/7fd081f4ba534cc2a9ea4c00416af2a0.pdf)

[4] Goldman Sachs Research - “The S&P 500 Is Expected to Rally 12% This Year” (https://www.goldmansachs.com/insights/articles/the-sp-500-expected-to-rally-12-this-year)

[5] Oppenheimer - “2026 Market Outlook” (https://www.oppenheimer.com/news-media/2026/insights/oam/2026-market-outlook)