The US Employment Situation report for December showed unexpected results, indicating that job growth was lower than expected. Non-farm payrolls increased by just 50,000, falling short of the Bloomberg estimate of 70,000. Revisions from the previous month indicated that 76,000 more jobs were lost. Despite these lower numbers, the unemployment rate dropped to 4.4% from 4.5% in November. Average monthly job growth for 2025 is projected at 49,000, significantly down from 168,000 in 2024.

Job Gains and Losses

Job growth came from both private and public sectors, particularly in healthcare, leisure, and finance. However, sectors like manufacturing, construction, retail trade, warehousing & transportation, and professional services saw job losses. Monthly wage growth was slightly higher than expected at 0.3% and annual growth was 3.8%, compared to November’s rates of 0.2% and 3.6%. Analysts expect rate cuts in the future, though not right away. A pause is anticipated in early 2026, aligning with Jerome Powell’s departure as Chair in May, with two rate cuts likely in the second and third quarters of that year. The December 2025 jobs report was much weaker than expected, signaling a slowing US economy. With only 50,000 jobs added and significant downward revisions in prior months, it supports the idea that the Federal Reserve will consider a rate cut soon. However, steady wage growth means they may not act immediately. For those trading interest rate futures, the current situation suggests a pause from the Fed in the near future, followed by cuts later in the year. The CME FedWatch Tool indicates over a 65% chance of a rate cut by June 2026, up from about 40% before the jobs report. This could lead to a steeper yield curve, with traders using options on SOFR futures to bet on lower rates later in the year.

Increased Economic Uncertainty and Market Volatility

Growing economic uncertainty is likely to increase volatility in the stock market. The VIX, which measures expected market volatility, has risen from the low 14s in late 2025 to nearly 17 after last week’s report. Traders might want to consider buying protective put options on major indices like the S&P 500 or employing collar strategies to shield against possible downturns. The pattern of a weakening job market ahead of a change in Fed policy is familiar. In late 2018, similar signs of economic slowdown appeared, ultimately leading to a halt in the Fed’s rate hikes and rate cuts in 2019. This current situation feels similar, suggesting that market weakness could foreshadow an official policy change. The job data also highlighted a divide between sectors, with healthcare gaining jobs while manufacturing and construction lost them. This difference supports trading derivatives on sector-specific ETFs. Traders might consider put options on an industrial ETF like XLI while remaining neutral or cautiously optimistic about a healthcare fund like XLV. Lastly, expectations of future US rate cuts are likely to weaken the US dollar. As other central banks may not ease their policies as quickly, new opportunities arise in currency markets. We believe that long call options on pairs like EUR/USD or GBP/USD offer an attractive way to capitalize on dollar weakness heading into the second quarter. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now