Small Caps Lead as Markets Broaden Beyond Tech

Wall Street responded to mixed economic data by closing higher last week. The Dow reached a record high, ending the week well above the 49,000 milestone, surpassing that mark for the first time in its history. Investors were not deterred by a rather lukewarm jobs report, as the S&P 500 closed at a new record high, while a midweek profit-taking in tech and artificial intelligence (AI) stocks wasn’t enough to prevent the NASDAQ from also closing notably higher. The Russell 2000, which is reactive to Industrials, Health Care and Financials, outperformed the larger-cap indexes. Nine of the 11 market sectors ended the week higher, led by Materials, Industrials and Energy. Information Technology and Utilities closed marginally in the red. Ten-year Treasury yields ticked lower. Crude oil prices inched higher as markets responded to unrest in Iran and continued uncertainty over the Venezuelan crude oil supply.

Labor Market Cools Further Despite Lower Unemployment Rate

Total employment rose by 50,000 in December, while the unemployment rate ticked down 0.1 percentage point to 4.4%. Employment rose by 584,000 in 2025 (an average monthly gain of 49,000), a less than 2.0 million increase in 2024 (an average monthly gain of 168,000). The change in total employment for October was revised down by 68,000, and the change for November was revised down by 8,000. With these revisions, employment in October and November combined was 76,000 lower than previously reported. The total number of unemployed decreased by 278,000 in December to 7.5 million. The labor force participation rate, at 62.4%, was 0.1 percentage point less than the November estimate. The employment-population ratio inched up 0.1 percentage point to 59.7% last month. The number of long-term unemployed (those jobless for 27 weeks or more) changed little over the month at 1.9 million but was up by 397,000 over the year. The long-term unemployed accounted for 26.0% of all unemployed people in December.

Eye on the Week Ahead

The latest inflation data should be available this week with the presumptive releases of the Consumer Price Index and the retail sales report. Government agencies are still trying to catch up following the government shutdown in October, so there is some uncertainty as to actual release dates for most economic reports.