Global markets have started 2026 on a strong footing, but investors may be facing their first real stress test this Friday. Two major catalysts are converging at once: the release of December’s U.S. jobs report and a potential Supreme Court ruling on the legality of most of President Trump’s tariffs.
So far, both stocks and bonds have remained relatively calm in early January—despite geopolitical tension around Venezuela’s oil industry and an ongoing rotation in stock market leadership.
“There have been a number of headlines where things feel a little too quiet, a little too calm,” said Michael Arone, chief investment strategist at State Street Investment Management.
But that calm may not last long.
Markets Are Bracing for Volatility
Options markets are signaling that volatility is about to pick up. According to Interactive Brokers strategist Steve Sosnick, traders are pricing in a 0.9% move in either direction for the S&P 500 based on options expiring Friday—potentially the most volatile session of the year so far.
Meanwhile, the VIX volatility index has been quietly climbing even as the S&P 500 moves higher, sitting near 15.5, suggesting investors are starting to hedge against downside risk.
“A relatively complacent options market implies that there is a bit of room for surprises,” Sosnick warned.
Why the Jobs Report Matters So Much Right Now
Friday brings the first U.S. jobs report of 2026, covering December’s employment data—and the stakes are unusually high.
According to FactSet, the S&P 500 is trading at more than 22 times forward earnings, near levels last seen at the early 2022 market peak, which preceded a long bear market.
That means there’s very little margin for error, said Tom Essaye, founder of Sevens Report Research.
Market Expectations:
- 73,000 new jobs added (vs. 64,000 previously)
- Unemployment rate expected to dip from 4.6% to 4.5%
The Risk:
- Too strong → Fewer Fed rate cuts expected → Stocks could sell off
- Too weak → Growth fears return → Valuations get questioned
“A ‘Goldilocks’ number—solid job growth with stable unemployment—is the best-case scenario for stocks,” Essaye said.
Some Positive Signals From Hiring Data
There is reason for cautious optimism. The latest Challenger, Gray & Christmas report showed:
- Job cuts fell to their lowest level in 17 months
- Employers announced just 35,553 layoffs
- Hiring plans hit their strongest December in three years
This suggests the labor market may still be cooling without breaking—exactly what markets want to see.
Supreme Court Tariff Ruling: Another Market Catalyst
The Supreme Court may also rule Friday on whether Trump’s tariffs—imposed under emergency powers—are legal.
Prediction markets currently assign only a 24% chance that the court rules in favor of keeping the tariffs.
Many Wall Street strategists believe:
- A negative ruling is already priced in
- The White House would likely find another way to reimpose tariffs
Still, the ruling could trigger sector-specific volatility, especially in retailers like:
- Walmart
- Costco
- Dollar General
Over 1,000 companies have already sued to recover paid tariffs.
What Happens to Markets If Tariffs Are Struck Down?
According to Crossbridge Capital:
- The U.S. dollar could weaken
- The yield curve could steepen
- The Fed could gain more room to cut rates
“If the tariffs get struck down, then what basis would the Fed have for not cutting rates?” one strategist said.
Ironically, tariffs—once seen as market poison—are now viewed by some investors as a useful source of government revenue during a time of ballooning deficits.
“It goes to show how quickly market sentiment changes,” said a Fundstrat strategist.
The Bottom Line
With stocks richly valued, the market is walking a tightrope:
- A perfect jobs number keeps the rally alive
- A surprise in either direction could trigger a sharp pullback
- A tariff ruling could add fuel to the move—either way
Friday could mark the first real volatility test of 2026.
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