US Labor Market's Sectoral Shifts Offer Clues for Resilient Equity Portfolios Amid Trade Turbulence

The US labor market continues to defy recessionary fears, but beneath its surface lies a stark divergence between sectors insulated from trade policy headwinds and those buckling under their weight. May's employment report reveals a jobs market that is neither booming nor collapsing—instead, it is reorganizing. This shift offers a clear roadmap for investors: rotate toward sectors benefiting from steady demand and away from those exposed to trade volatility.

Health Care Soars as Manufacturing Retreats
The May data underscores a deepening divide between sectors. Health care added 62,000 jobs—nearly double its 12-month average—while manufacturing shed 8,000, its third straight monthly loss.

. Temporary help services, a classic cyclical barometer, fell by a staggering 20,200 jobs, signaling corporate caution about future demand. Meanwhile, leisure and hospitality added 48,000 jobs, outpacing its recent trend as travel and dining rebound.

This bifurcation is no accident. Trade policy uncertainty—driven by ongoing tariff disputes with China and the EU—is eroding confidence in industries reliant on global supply chains. Manufacturing, which accounts for roughly 11% of US jobs, is particularly vulnerable. Tariffs on steel, semiconductors, and automotive parts have squeezed margins, while retaliatory measures abroad have crimped exports.

Health care, by contrast, thrives on domestic demand. An aging population and rising chronic disease rates ensure steady need for hospitals, ambulatory services, and skilled nursing care. The sector's resilience is further bolstered by government programs like Medicare, shielded from trade wars.

Wage Growth: A Moderate Floor, Not a Ceiling
Average hourly earnings for private-sector workers rose 0.4% in May, pushing annual wage growth to 3.9%. While this is down from the 4.2% peak in early 2024, it remains elevated by historical standards. The labor force participation rate dipped to 62.4%, suggesting lingering structural challenges—such as aging workers and childcare constraints—that limit wage pressures.

This moderation is a relief for the Federal Reserve. With core inflation at 3.1% year-over-year, the Fed can afford to keep rates steady, avoiding the aggressive hikes that would further stress cyclical sectors. A would show how defensive stocks thrive in low-rate environments.

Investment Strategy: Rotate to Defensives, Avoid Trade-Exposed Cyclicals
The sectoral divergence suggests a clear path for equity investors:

1. Overweight Healthcare:
2. Why: Insulated from trade wars, benefiting from aging demographics and rising healthcare spending.
3. How: Target companies in hospitals (e.g., HCA Healthcare, ), ambulatory services (e.g., UnitedHealth Group), and home health care.

4. ETFs: Consider the iShares US Healthcare ETF (IYH) or the Vanguard Health Care ETF (VHT).

5. Underweight Manufacturing & Retail:

6. Why: Exposed to trade disruptions, overcapacity, and weak consumer spending.

7. How: Reduce positions in industrial conglomerates (e.g., Caterpillar, ) and retailers reliant on imported goods (e.g., Target, Walmart).

8. Caution on Cyclical Services:

9. Why: Temporary help (e.g., ManpowerGroup) and construction firms face hiring slowdowns as businesses delay expansions.

The Fed's Role: A Tailwind for Defensives
The Fed's patient stance—no hikes expected this year, per CME FedWatch—supports sectors like healthcare, which benefit from low discount rates and steady cash flows. Meanwhile, cyclical industries face a double whammy: trade-related demand shocks and tighter financial conditions if the Fed eventually tightens.

Conclusion
The US labor market's resilience is uneven, but its sectoral patterns are a gift to investors. By rotating into healthcare and other defensives while avoiding trade-exposed cyclicals, investors can navigate the current uncertainty. As trade tensions and Fed policy shape the economy, the job market's divergence is a compass—not a crystal ball—to steer portfolios toward stability.

Investing involves risks, including possible loss of principal. Past performance does not guarantee future results. Always consult a financial advisor before making investment decisions.