Exactly in line with estimates was the only good reading for today’s non-farm payrolls – too high it may call into question market expectations for the Federal Reserve (Fed) to cut interest rates at their June meeting – too low will raise fears that the economy is weaker than expected. Today’s blowout jobs numbers weighed further on markets that were already roiling from the U.S.’s reciprocal tariffs and China’s initial response to them.

Nonfarm payrolls rose by +228K in March, well above forecasts of around +135K. This was a large improvement from February’s downwardly revised addition of +117K. This strong reading reflects continued resilience in the U.S. economy. However, does historic data matter with the level of change that’s likely to come from the recently announced tariffs?

China announced retaliatory 34% tariffs on all U.S. imports, in line with the additional duties the U.S. placed on their exports, as well as a slew of other measures. This escalation reflects the current global framework for engaging in tariff negotiations. While previously, outlandish tariff numbers brought trade partners to the negotiating table, this year we’re seeing large trading partners taking a firm but measured stand against these tariffs. This confirms the market’s initial take that while Trump’s rhetoric left the door for negotiations, escalation and near term global economic hardship are likely outcomes.

The ramp up in tariff rhetoric has accelerated the deglobalization shift from evolutionary to potentially revolutionary. From a portfolio positioning perspective, diversification remains the most important principal. Elevated volatility increases the scale of market movements, in both directions. While the U.S. is going into these negotiations in a strong economic position, as reflected by the resilient non-farm payrolls, global diversification is important as we navigate a new economic environment. Fixed income has reflected its relevance in the 60-40 portfolio, but investors need to remember that markets typically overreact in situations like this. The 10-year Treasury yield has pulled back below 4%, from a YTD high of almost 4.8% in January.¹ In line with heightened recession concerns, markets are currently convinced the Fed will reduce interest rates at their June meeting, with markets initially pricing in a 45% probability of a 50-basis point cut at the June meeting.² However, the messaging from the Fed Chair Powell has emphasized the importance of waiting for clarity on tariff policies and their likely impact, reflecting a cautious stance on the impact of tariffs on pricing pressure.

The employment and inflation situation remain a critical area to monitor as we move into this uncharted territory. Continued growth in health care and transportation & warehousing was encouraging from the March reading. These trends are illustrated in the charts below.