Why December 16 to 18 Could Be Big Days for the S&P 500 Index

With the Federal Reserve's final meeting of the year now in the rearview, there aren't too many days left in 2025. However, before investors head off for the holiday season, there could still be some fireworks that strongly impact the broader benchmark S&P 500 index this year, most of which will come out over the next few days.

The government plans to release several important pieces of economic data, some of which were delayed due to the government shutdown. Here's why Dec. 16 to Dec. 18 could be big days for the S&P 500 index.

The economy and the markets are still fragile

Now up over 17.5% (as of Dec. 11), the stock market looks like it's headed for a third consecutive strong year. While the last three years have been marked by intense volatility, they have all ended firmly in the green, generating strong returns for investors. However, that doesn't mean there isn't also strong uncertainty among investors, who have been bracing for a number of headwinds, including high inflation, a recession, or even a period of stagflation.

Image source: Getty Images.

The Fed and the market have largely been driving in the dark for the past several months due to the shutdown, but the government will start to play catch-up when it releases several critical pieces of economic data between Dec. 16 and Dec. 18. Here's the schedule:

• Tuesday, Dec. 16: Non-farm payrolls for both October and November, which include other important data such as average hourly earnings growth and the labor force participation rate. The data for October and November will be combined.
• Tuesday/Wednesday, Dec. 16 to 17: Retail sales. The Advance Monthly Retail Sales, an early headline of retail sales from a subsample of companies, comes out on Dec. 16, while the more detailed full retail sales report will come out on Dec. 17.
• Thursday, Dec. 18: The Consumer Price Index (CPI) for November and initial weekly jobless claims. There will be no October CPI report due to the shutdown.

Each of these economic metrics are important indicators for how the economy is faring and how the Federal Reserve will continue to proceed, whether it's through more interest rate cuts, leaving rates unchanged for several months, or maybe even an outside chance of rate hikes, although that's an unlikely scenario right now.

Non-farm payrolls provide data on the state of the labor market, which the Fed has expressed concerns about and cited as the main reason for lowering interest rates despite inflation remaining above its preferred 2% target. Although it's difficult for economists to come up with projections for a combined report, many expect the labor market to have slumped in October due to the government shutdown and rebounded somewhat in November. The unemployment rate is expected to remain unchanged at 4.4%.

Retail sales are important because they serve as an indicator of consumer demand in an economy that is largely built on consumer spending. Retail sales are typically stronger in the last few months of the year due to holiday shopping and the numerous sales and promotions offered by companies. Finally, the CPI measures the price changes of a basket of consumer goods and services, and is closely followed by the market as a gauge of inflation. Forecasts currently project the CPI to increase by 0.3% from the prior month and have increased 3% year over year.

How the market could react

It's always challenging to predict how the market will react to these reports, but most investors want the Fed to continue cutting interest rates. The Fed is more likely to do so if the labor market continues to show signs of weakness and if inflation comes in soft. That's because lower rates stimulate the economy and, therefore, the job market. The difficulty for the Fed is that lowering interest rates risks overheating the economy and reigniting inflation.

The Fed wants to avoid a period of stagflation where inflation remains high and unemployment rises, because it makes it difficult for the agency to help the labor market without increasing inflation and vice versa. Therefore, I would expect data that will allow the Fed to cut rates further to be well-received by the market.

Still, I would not recommend trying to trade around these events, because the market is unpredictable. For instance, if the jobs data comes in much weaker than expected, investors may start to panic in fear of an incoming recession. The key for long-term investors is to understand what's driving the market, so they can make less stressful and rational investing decisions, even if that means doing nothing at all.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.