Contrarian Resilience: Investing in US Equity Markets Amid Trade Turbulence and Fed Policy Shifts

The US equity market's recent performance has been a study in contrasts. While the Federal Reserve's tightening cycle and lingering trade uncertainties have dampened private sector hiring, sectors like state government, healthcare, and tech are defying the gloom. This divergence presents a compelling contrarian opportunity for investors: buy undervalued stocks in industries leveraged to fiscal policy and structural growth, while steering clear of rate-sensitive sectors. Let's dissect the data and map the path forward.

The Contrarian Case: Public Sector Strength Amid Private Sector Slump

The private sector's softening is undeniable. Nonfarm payrolls averaged just 124,000 per month in early 2025—down sharply from 2024's 168,000 average—while job cut announcements surged. Yet, the public and quasi-public sectors are thriving. Healthcare occupations, buoyed by aging demographics and digital transformation, are projected to add 1.9 million jobs annually through 2033. Tech roles, meanwhile, are expanding as state governments invest in AI, cybersecurity, and digital infrastructure to meet regulatory demands like the EU AI Act.

Healthcare's resilience is clear: the sector outperformed the broader market by 14% over the past year, driven by demand for AI-driven diagnostics and telehealth platforms. State governments, particularly in Texas and Florida, are leading the charge. These states saw tech employment grow by 5.4% and 4.1%, respectively, in 2024—a trend fueled by Trump-era trade deals that prioritize domestic tech supply chains.

Why the Divergence Matters for Investors

The job market's dual tracks—private stagnation vs. public/tech growth—signal a structural shift. Companies that serve state governments or healthcare systems are insulated from trade frictions and rate hikes. For instance, health IT firms like Cerner Corp (CERN) or cybersecurity specialists like FireEye (FEYE) are embedded in state-funded digitization projects. Meanwhile, Texas-based tech firms like Rackspace Technology (RXT) benefit from both local job growth and federal infrastructure spending.

This regional outperformance underscores a broader theme: invest where fiscal policy intersects with demographic needs. The Biden administration's push to expand Medicaid in 2023 and the 2024 AI for Health Initiative have created tailwinds for healthcare tech. States like Florida, which now mandates AI screening for early-stage cancers, are creating recurring revenue streams for diagnostic software firms.

Caution: Rate-Sensitive Sectors Face Headwinds

While contrarian plays in resilient sectors offer upside, rate-sensitive industries—real estate, consumer discretionary, and leveraged industrials—are vulnerable. The Fed's pivot to a “higher for longer” stance has already slowed housing starts and auto sales.
Investors should avoid over-leveraged companies in these sectors and instead focus on dividend-paying healthcare firms or tech stocks with recurring revenue models.

The Buy Signal: Divergence as a Contrarian Catalyst

The widening gap between public/tech job growth and private sector weakness is a buy signal for three reasons:
1. Valuation Discounts: Many healthcare tech stocks trade at 15-20% below their 5-year averages despite robust earnings growth.
2. Regulatory Tailwinds: State-level mandates for AI adoption in healthcare create recurring demand.
3. Trade Deal Synergies: Trump's emphasis on domestic tech supply chains has reduced outsourcing risks for US firms.

Portfolio Strategy: Target the Resilient, Avoid the Fragile

• Buy:
• Healthcare Tech: Companies like Athenahealth (ATHN) or Philips (PHG) benefit from AI integration in clinics.
• State-Linked Tech: Rackspace (RXT), which supports Texas' cloud migration projects.

• Cybersecurity: FireEye (FEYE) or CrowdStrike (CRWD), critical for state healthcare systems.

• Avoid:

• Rate-Sensitive Sectors: Home Depot (HD) or Lennar (LEN) face housing slowdowns.
• Overleveraged Industrials: Boeing (BA) or Caterpillar (CAT) with debt-driven margins.

Final Word: The Contrarian's Edge

The market's current duality is no accident. Investors who bet on sectors insulated from trade wars and rate hikes—while avoiding those exposed to them—will gain an edge. The public/tech job boom isn't a blip; it's a structural shift. For now, the resilience of state government and healthcare tech isn't just data—it's a roadmap to outperforming in 2025.