Investors look to labor market for more soft landing evidence: What to know this week

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Stocks just had their best month of the year, but the rally could lose steam depending on what a crucial labor market report shows.

The November jobs report, scheduled for release Friday, highlights a week of economic data that includes key updates on activity in the services sector as well as the latest readings on job openings and consumer sentiment.

The Federal Reserve will enter its quiet period ahead of its next meeting, which begins on Dec. 12.

On the earnings front, results from J.M. Smucker (SJM), GameStop (GME), Lululemon (LULU), Dollar General (DG), and Broadcom (AVGO) will highlight a week of quarterly reports.

Stocks entered the first full week of December after closing out their first winning month since July. In November, the Nasdaq Composite (^IXIC) soared 10.7%, while the S&P 500 (^GSPC) added 8.9% and the Dow Jones Industrial Average (^DJI) rose about 8.8%.

Investors will look for further signs of cooling in the labor market when the jobs report is released on Friday. A report that shows job growth but not excessively above expectations adds to the increasing sentiment that the Fed's rate hiking campaign could end in a "soft landing," where inflation returns to 2% without a major downturn in economic activity.

Read more: What the Fed rate-hike pause means for bank accounts, CDs, loans, and credit cards

After a weaker-than-expected print in October, largely driven by the United Auto Workers strikes, economists project an increase in job additions in November.

The November jobs report is expected to show 200,000 nonfarm payroll jobs were added to the US economy last month with unemployment remaining flat at 3.9%, according to data from Bloomberg. In October, the US economy added 150,000 jobs while the unemployment rate hit its highest level since January 2022.

"We anticipate softening labor demand will remain a theme moving forward," Wells Fargo's team of economists led by Jay Bryson wrote in a note on Friday. "That said, the end to UAW and Hollywood actors' strikes looks apt to boost November’s payroll print by close to 45K. Furthermore, a relatively late survey week should help capture more holiday hiring than in prior years, supporting seasonally-adjusted gains. We estimate that employers added 230K payrolls over the month."

For investors, the print will be key in either bolstering or contradicting recent market sentiment that the Fed is done hiking interest rates and could even cut rates sooner than many expected.

The Fed attempted to temper those expectations on Friday.