We remain positive on risk assets and are poised to take advantage of both what we believe are mispricings in parts of the bond markets as well as more attractive valuations within equities following March’s market weakness.
March non-farm payrolls, released today, were meaningfully higher than consensus even as the conflict in the Middle East wears on. Payrolls increased by +178k in the month ahead of expectations for a +59k print. Payrolls were revised lower for February to -133k from -92k while January was revised up modestly by +7k. In aggregate, today’s print brings the trailing three-month average payroll gains to +68k – notably stronger than the second half of 2025.
Driving the print, once again, was health care. While declining by -28k in February due to a large strike at Kaiser Permanente, health care job growth rebounded in March, with the sector adding +76k. Leisure and hospitality was also notably higher (+44k) as was social assistance (+14k). Notably, construction (+26k), transportation and warehousing (+21k), and manufacturing (+15k) were all positive in March as well; these green shoots are consistent with most recent release of ISM Manufacturing PMI of 52.7, the measure’s third straight increase after 10 months of contraction. Areas of weakness in the report were financial activities (-15k) and the Federal government, which shed another -18k jobs to bring the cumulative decline in U.S. government jobs to almost -12% since October 2024.
The unemployment rate ticked down to 4.3% on a further decline in the participation rate, which fell from 62.0% to 61.9% – the lowest level since November 2021. Employed persons were down by -64k, and there were 332k fewer unemployed persons as many of these individuals left the workforce. Average hourly earnings decelerated as well, up only +0.2% month-over-month and +3.5% year-over-year while average hours worked declined from 34.3 to 34.2.
Our perspective is that this print, combined with the sharp decline in February, does little to meaningfully impact the Fed’s path in the short-term. Already uneasy about the one-time (but admittedly rolling) transmission of tariffs to prices, and mindful of the risk for the translation of near-term higher energy prices to other end goods and services (the shift from transitory to structural), the Fed is likely on hold for at least the next two meetings. Another meaningfully negative print this month may have catalyzed the Fed to act sooner and/or more emphatically, but save evidence of broad-based deterioration, the inflation side of the dual mandate is weighing heavily. There is also little evidence of a material deceleration in economic activity, particularly when considering the pace of jobless claims, thus providing a margin of safety for the Fed as it monitors the impacts of the Middle East conflict.
Although we acknowledge the near-term challenges presented by higher energy prices, we believe that rates have likely moved too much in terms of pricing out cuts in the U.S. and pricing in several hikes in Europe. The duration of the Iranian conflict is key – oil prices over $100 a barrel for an extended period of time will likely yield demand destruction, which would slow the global economy and point the central bank compass back towards accommodation. Based on the political backdrop in the U.S. and the growing discontent of voters centered around affordability concerns, as well as the Trump Administration’s comments about looking for an off-ramp, we believe oil prices will fall at least modestly over the next two to three weeks. Even if a portion of the current “war premium” remains in the price, the levels at which oil and natural gas would trade in a de-escalation scenario would be digestible. Therefore, we remain positive on risk assets and are poised to take advantage of both what we believe are mispricings in parts of the bond markets, as well as more attractive valuations within equities following March’s market weakness.