Fed Pivot in Sight? How the June Jobs Report Could Spark a Treasury Rally and Rebalance Equity Markets

The June 2025 jobs report delivered a stark reminder that the U.S. labor market is cooling—a development that could finally force the Federal Reserve to pivot away from its inflation-fighting stance. With nonfarm payrolls rising just 139,000 in May (revised down from earlier estimates) and unemployment holding at 4.2%, the data underscores a slowdown in hiring that may signal the end of an era of aggressive monetary tightening. For investors, this shift creates compelling opportunities in long-duration Treasuries and rate-sensitive equities, as markets recalibrate to a lower-for-longer rate environment.

The Jobs Report: A Crossroads for Monetary Policy

The headline numbers mask deeper trends. While healthcare and leisure sectors added jobs, federal government employment fell by 22,000—part of a 59,000-job decline since January. Even more telling, the revisions to March and April payrolls erased 95,000 jobs, reflecting a pattern of slowing growth. Meanwhile, average hourly earnings grew 3.9% year-over-year—a deceleration from earlier peaks—and the ADP's June report showed a startling 33,000 private-sector job loss, the first such decline since 2023.

These figures suggest the labor market is no longer overheating, easing one of the Fed's key inflation concerns. With the unemployment rate projected to rise to 4.3% in coming months, the Fed's calculus is shifting. The central bank's dual mandate of price stability and full employment now requires a pause—or even rate cuts—to avoid overshooting on the latter.

Bond Markets: The Case for Long-Duration Treasuries

The implications for bonds are clear. A Fed pivot would reduce the risk of further rate hikes, flattening the yield curve and boosting prices for long-maturity Treasuries. The 30-year Treasury yield has already fallen from 4.5% in early 2024 to 3.8% in June 2025—a trend that could accelerate if the Fed signals caution. Investors should consider overweighting ultra-long Treasuries (e.g., TLT) or inverse rate ETFs like TBF, which profit from declining yields.

Importantly, the June jobs report's mixed signals—steady wage growth but weakening hiring—create a “Goldilocks” scenario for bonds. Markets will price in a Fed that's neither too aggressive (which would hurt stocks) nor too passive (which would stoke inflation fears). This stability could extend the Treasury rally well into 2026.

Equities: Rotate to Rate-Sensitive Sectors

Equity investors should follow the Fed's lead and focus on sectors that thrive in low-rate environments. Utilities (XLU), real estate investment trusts (VNQ), and consumer staples (XLP) are prime candidates. These sectors have low sensitivity to economic growth but high dividend yields, making them attractive as bond yields fall.

For example, utilities, which trade at a 4.2% dividend yield versus the S&P 500's 1.8%, offer a buffer against market volatility. Similarly, REITs benefit from lower borrowing costs, as seen in the 10% rise in Vanguard Real Estate ETF (VNQ) during periods of declining mortgage rates.

Risks and Considerations

The path forward isn't without pitfalls. If wage growth rebounds unexpectedly—or if the Fed's “data dependence” leads to an unanticipated hike—the bond rally could reverse. Investors should monitor the August jobs report (which will include July's data) and September's CPI print for clues. A break above 4.0% in the unemployment rate would solidify the case for Fed easing.

Additionally, long-duration Treasuries carry reinvestment risk if yields rise unexpectedly. Pairing exposure to TIPS (TIP) or shorting the dollar (UUP) could hedge against inflation surprises.

Conclusion: Positioning for the Fed's Pivot

The June jobs report is a turning point. With hiring slowing and unemployment rising, the Fed's hand is being forced to prioritize labor market stability over inflation hawkishness. This shift creates a multi-month opportunity in Treasuries and defensive equities. Investors who rotate into these assets now may secure gains as markets price in a policy pivot—while those clinging to growth stocks risk missing out on a rotation to lower rates and safer yields.

In short: Buy bonds, sell cyclicals, and hold on to dividends—the Fed's pivot is coming, and it's time to bet on it.