US Equity Markets Rally as Jobs Strength and Trade Truce Offer Near-Term Relief

The S&P 500 and Nasdaq Composite notched their best weekly gains in months this week, fueled by a resilient U.S. labor market and tentative signs of cooling U.S.-China trade tensions. While underlying risks persist—such as slowing wage growth and tariff-driven inflation—investors have seized on the April jobs report and diplomatic signals to push equity benchmarks to fresh highs.

The April 2025 jobs report, released on May 4, showed nonfarm payrolls rose by 177,000, slightly below March’s revised 185,000 but above expectations. The unemployment rate held steady at 4.2%, while labor force participation edged up to 62.6%. Healthcare (+51,000 jobs) and transportation/warehousing (+29,000) led gains, likely reflecting pre-tariff stockpiling. Meanwhile, manufacturing lost 1,000 jobs—the sector’s third straight monthly decline—as trade tensions bite.

Trade Tensions: A Fragile Truce?
The equity rally also drew support from whispers of a potential U.S.-China trade deal. While tariffs remain elevated—U.S. rates on Chinese goods average 124%, China’s on U.S. goods 147%—both sides have quietly expanded exemptions. China exempted U.S. ethane, semiconductors, and pharmaceuticals from its 125% tariffs, while the U.S. granted auto industry carve-outs.

However, the truce is tenuous. China’s commerce ministry insists any talks require the U.S. to “rescind unilateral tariffs first,” while Washington demands Beijing address structural issues like IP theft and market access. The U.S. Treasury’s Scott Bessent has warned that tariffs above 125% risk collapsing trade entirely—a concern echoed by the IMF, which slashed its 2025 global growth forecast to 2.8%.

Sector Winners and Losers
The jobs report highlighted stark sector divides. Healthcare and transportation thrived, but manufacturing and government jobs (down 26,000 since January under Elon Musk’s DOGE reforms) faltered.

Equity investors are pricing in a Fed pause: the central bank indicated a “wait-and-see” approach to rates, with markets now pricing a 25-basis-point cut by July 2025. This dovish stance has buoyed rate-sensitive sectors like tech and consumer discretionary.

Beware the Underlying Risks
While the jobs report was strong on the surface, cracks remain. Average hourly earnings grew just 0.2% month-over-month—annual growth slowed to 3.8%, a pandemic-era low. Long-term unemployment rose by 179,000 to 1.7 million, signaling labor market fragility.

The trade war’s human toll is also steep. Nomura estimates a 50% drop in Chinese exports to the U.S. could cost 16 million jobs in China—a risk if tariffs remain unresolved. Meanwhile, U.S. consumer confidence has fallen to pandemic lows, with 32% of Americans expecting reduced job availability.

Investment Implications
- Near-term bullishness: Equity gains are justified by the jobs report’s resilience and diplomatic de-escalation.
- Sector rotation: Favor healthcare, tech, and consumer discretionary; avoid manufacturing and trade-exposed industries.
- Tariff uncertainty: Monitor exemptions and geopolitical signals—any escalation could reverse gains.

Conclusion
U.S. equities have rallied on the twin pillars of labor market strength and tentative trade progress, but the foundation is brittle. While the Fed’s pause and sector-specific job growth offer near-term optimism, risks like slowing wage growth, China’s economic vulnerability, and unresolved trade issues linger. Investors should take profits selectively: the S&P 500’s 2025 advance to 5,000+ hinges on a true trade deal—not just temporary truces.

As the old adage goes, “Don’t fight the Fed”—but in this case, don’t ignore the tariff. The current rally may be a pause in the storm, not the calm after it.