If there’s one thing I’ve learned in over 30 years of investing, including 28 on Wall Street‘s sell side, it’s that markets aren’t 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, isn’t considered bullish by those of us who have been at this for a few decades (and have the gray hair to prove it).

“The intraday reversal is often an indication of buyer exhaustion,” said veteran trader James DePorre in a post on TheStreet Pro. “The ‘low-of-the-day’ close is typically driven by institutional sellers who execute their primary moves in the final hour.”

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.

The December unemployment rate and a decision on tariffs from the Supreme Court are looming.

Bloomberg/Getty Images

Unemployment could rock Fed bets, while Supreme Court holds keys to corporate profits

The Federal Reserve will pay particular attention to the BLS’ 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 economists’ consensus is that Friday’s 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

“For now, our base case remains that the Fed will not cut again under Powell,” wrote Bank of America in a research note shared with TheStreet.

The market isn’t overly optimistic, either. The CME‘s 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 isn’t the only market wildcard on Friday, though. The Supreme Court agreed to hear arguments for and against President Donald Trump’s tariffs on an accelerated timeline, and the Court has said this Friday will be an “opinion day.”

The Supreme Court didn’t say that it will deliver its tariff ruling on Friday, but many think that it’s 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 don’t 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 that’s 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.

“We think there’s room for nuance,” wrote Morgan Stanley analysts. “Some of the ‘In-Between’ scenarios would signal that the limited/minimal refunds outcome is more likely,
resulting in limited economic impact & likely no change to bill issuance.”

Morgan Stanley’s 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

There’s an old Wall Street adage that goes, “buy the rumor, sell the news” for positive events or “sell the rumor, buy the news” 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.

It’s 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 Friday’s data proves to be.

“There 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,” 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 doesn’t 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 — 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 that’s short-lived.

“We think the first order reaction from some investors to the Supreme Court overturning IEEPA tariffs would likely be selling Treasuries,” wrote the analysts. “We do not expect this reaction to be long-lived… We think the second order and more lasting reaction is investors ‘buy the fact’ and send yields lower.”

Related: Goldman Sachs sends strong message on S&P 500 earnings outlook