If thereâs one thing Iâve learned in over 30 years of investing, including 28 on Wall Streetâs sell side, itâs that markets arenât a fan of uncertainty. The stock market performs best when a trend is established, and everyone has a clear understanding of possible outcomes; it struggles ahead of events that could reshape risks.
This was on display on Wednesday, Jan. 7, when early morning gains pushed markets to new highs only to fade sharply by the closing bell ahead of two major events on Friday, Jan. 9: the much-anticipated Bureau of Labor StatisticsEmployment Situation Summary (the unemployment report to you and me) and a potential ruling by the Supreme Court on tariffs.
A reversal day, as we saw on Wednesday, isnât considered bullish by those of us who have been at this for a few decades (and have the gray hair to prove it).
âThe intraday reversal is often an indication of buyer exhaustion,â said veteran trader James DePorre in a post on TheStreet Pro. âThe âlow-of-the-dayâ close is typically driven by institutional sellers who execute their primary moves in the final hour.â
The stakes on Friday are undeniably high given the recent action, and the outcome may significantly reshape how investors model risk and reward for the rest of 2026.
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Unemployment could rock Fed bets, while Supreme Court holds keys to corporate profits
The Federal Reserve will pay particular attention to the BLSâ latest jobs figures, as its next decision on interest rates is anything but certain.
Fed Chairman Jerome Powell sets the Fed Funds Rate based on a dual mandate:
- Low unemployment
- Low inflation
That was a tricky tightrope to walk in 2025, given that layoffs through November surged 54% to over 1.1 million, according to Challenger, Gray, & Christmas, and Consumer Price Index (CPI) inflation rose from 2.3% in April to 3% in September before retreating to 2.7% in November.
Ultimately, Powell and other Federal Open Market Committee (FOMC) members decided that the risk from rising unemployment, which stood at 4.6% in November, up from 4% in January, was greater than the headwinds from inflation. As a result, interest rates were cut by a quarter percentage point at each of the final three meetings of 2025.
Whether another cut happens again when the FOMC meets next on January 28 is a bit of a long shot. Powell tilted hawkish after the December meeting, and other officials appear to think similarly, suggesting the Fed may return to the sidelines in January. A rate cut this month likely hinges on whether the unemployment rate retreats or rises again in December.
Wall Street economistsâ consensus is that Fridayâs unemployment report will show a rise to 4.7%. However, not everyone agrees. I wrote about Bank of America earlier this week. It thinks it will fall to 4.5% and that the Fed would only consider a rate cut this month if it clocks in above 4.6%.
Unemployment rate by year since 2020 (December):
- 2025: 4.7% (estimate)
- 2024: 4.1%
- 2023: 3.8%
- 2022: 3.5%
- 2021: 3.9%
- 2020: 6.7%
Source: BLS
âFor now, our base case remains that the Fed will not cut again under Powell,â wrote Bank of America in a research note shared with TheStreet.
The market isnât overly optimistic, either. The CMEâs FedWatch tool, which estimates the probability of Fed cuts based on futures market trading, pegs the odds of a quarter-point cut this month below 12%.
The unemployment data isnât the only market wildcard on Friday, though. The Supreme Court agreed to hear arguments for and against President Donald Trumpâs tariffs on an accelerated timeline, and the Court has said this Friday will be an âopinion day.â
The Supreme Court didnât say that it will deliver its tariff ruling on Friday, but many think that itâs likely. If so, it could have implications for corporate profits, given that hundreds of billions of dollars have been collected from import taxes already since President Trump enacted them last year.
The Supreme Court is specifically deciding whether the White House overstepped its authority in setting tariffs using the International Emergency Economic Powers Act, or IEEPA.
The IEEPA grants authority to put in place trade policies during times of emergency. Most donât think that the use of it to set tariffs fits the mandate, given betting markets Kalshi and Polymarket.
Polymarket bets suggest a 24% chance that the Supreme Court will uphold tariffs, while Kalshi puts the odds at 30%.
While most are likely thinking in terms of an all-or-nothing ruling, Morgan Stanley points out thatâs not necessarily the case. In a research note shared with me this week, it suggests the Supreme Court could very well issue a middle-ground ruling rather than a go/no go ruling.
âWe think thereâs room for nuance,â wrote Morgan Stanley analysts. âSome of the âIn-Betweenâ scenarios would signal that the limited/minimal refunds outcome is more likely,
resulting in limited economic impact & likely no change to bill issuance.â
Morgan Stanleyâs in-between, grey area Supreme Court IEEPA ruling scenarios include:
- Prospective relief: Existing tariffs remain but future tariffs require Congress or another authority other than IEEPA.
- Technical mix shift: Other tools can be used to maintain and create tariffs if IEEPA tariffs are retroactively invalidated.
- Temporal limitation: Tariffs remain in place for a specified period, allowing the administration time to transition to other tools.
- Partial overturn: Only specific IEEPA tariffs are removed.
What happens next depends on the details
Thereâs an old Wall Street adage that goes, âbuy the rumor, sell the newsâ for positive events or âsell the rumor, buy the newsâ for negative events. The market often acts ahead of a catalyst, setting up opportunities for either upside or downside once the catalyst has been triggered.
Itâs certainly possible that any profit-taking on Wednesday, and if stocks fall again today, Thursday, sets the stage for a bounce. However, that will really depend on how shocking or surprising Fridayâs data proves to be.
âThere is still plenty of opportunity in this market, but we likely need further chart development and consolidation before it is safe to get aggressive with new buys again,â wrote DePorre.
If the December unemployment rate is 4.7%, then I suspect the odds for a cut on January 28 will improve. While the Fed doesnât control bank lending rates, the Fed Funds Rate does influence them. If rate cuts become more likely, then lower interest rates can prop up corporate profits by spurring GDP and reducing interest expense â good news for stock prices.
If the Supreme Court invalidates IEEPA tariffs, corporate profits would benefit from a decrease in effective tariff rates, which are currently 16.4%, according to the Yale Budget Lab. It would also lower inflation and boost GDP, but in turn, trigger refunds that could pressure U.S. debt and reignite concerns over foreign demand for bonds.
In the event of a full reversal, Morgan Stanley thinks the bond market will have a knee-jerk reaction thatâs short-lived.
âWe think the first order reaction from some investors to the Supreme Court overturning IEEPA tariffs would likely be selling Treasuries,â wrote the analysts. âWe do not expect this reaction to be long-lived⌠We think the second order and more lasting reaction is investors âbuy the factâ and send yields lower.â
Related: Goldman Sachs sends strong message on S&P 500 earnings outlook