Labor Market Divides: Play It Safe with Healthcare and Bonds as the Fed Holds Steady

The U.S. labor market is sending mixed signals—private sector resilience in healthcare and services contrasts sharply with federal government layoffs, while tariff-induced uncertainty keeps the Fed on pause. This divergence isn't just economic noise; it's a roadmap for investors to navigate risk and reward. Let's break it down.

First, the private sector is the star performer. Health care added 62,000 jobs in May 2025—surpassing its 12-month average—and kept growing in June. Hospitals, clinics, and social services are booming, fueled by aging demographics and rising demand for chronic care. Meanwhile, leisure and hospitality added another 48,000 jobs, proving consumers still spend when they can.

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But here's the catch: not all private hiring is strong. ADP reported a 33,000 private-sector job loss in June, contradicting BLS's upbeat numbers. This inconsistency suggests companies are hesitant to hire, not slashing jobs—a critical distinction. Pair that with wage growth: private-sector hourly earnings rose 3.9% year-over-year, but production workers only saw a 0.4% bump in May. No wage spike, no inflation panic—so the Fed stays calm.

Now, the government sector: federal jobs have plummeted by 69,000 since January, while states are hiring. This state vs. federal rift isn't just political—it's sector-specific. Investors should avoid federal contractors but watch for bargains in state infrastructure plays.

Why does this matter for your portfolio?

1. Overweight healthcare/social services stocks—these sectors are recession-resistant and tied to structural growth. Think UnitedHealth (HUM), Mckesson (MCK), or managed-care ETFs like HMO.
2. Underweight tariff-sensitive industries—manufacturing, autos, and tech exporters face rising costs and shrinking margins. Avoid Caterpillar (CAT) or Ford (F) unless you're betting on a trade deal.
3. Embrace rate-resistant bonds—the Fed's patient stance means 7-10 year Treasuries (IEF) will hold value.

The key risk: if wage growth suddenly accelerates, the Fed could tighten faster, crushing bonds and cyclicals. Keep an eye on production workers' wages—they're the canary in the coal mine for broad inflation.

Investors, this is no time for recklessness. Stick with steady-earning sectors, avoid trade battlegrounds, and let bonds hedge against Fed hesitation. The labor market's divisions aren't weaknesses—they're opportunities. Play them smart, and you'll outlast the uncertainty.

Action Alert: Trim cyclical equity exposure. Load up on healthcare and bonds. This isn't a sprint—it's a marathon where patience pays.