From Rate Hikes to Trade Wars: Investors Navigate New Risks
As volatile as Trump’s trade policies may be, they still beat the rising interest rate fears that investors grappled with recently.
Tariffs are the latest headwind for stock investors. As expected, President Trump has been yielding the powerful trade weapon as a bargaining chip to achieve his policy goals.
But as treacherous as navigating Trump’s volatile trade policies is, some might argue that it beats the rising interest rate fears that investors were grappling with just a few weeks ago.
In mid-January, the 10-year Treasury bond yield neared 4.8%, while the yield on the 30-year briefly topped 5%– the loftiest interest rates for both bond maturities since November 2023.
The rising yields pushed the SPDR S&P 500 ETF Trust (SPY) down by nearly 5% from its all-time highs and caused investors to wonder whether rates were poised to climb even higher.
Fortunately for stock bulls, some reassuring readings on consumer price inflation pushed yields down modestly from this year’s highs. But the saga underscores how the current inflation and rate environment remains fundamentally different than the one that existed prior to the Covid-19 pandemic, when rates and inflation were unusually low for years.
While interest rate worries have receded for now, they could potentially reignite should inflation tick higher.
Hot CPI Print
Case in point: On Feb. 12, the Bureau of Labor Statistics reported that consumer prices rose faster than expected in January, leading to a pullback of as much as 1.1% in SPY. The ETF finished the day down just 0.3% as investors speculated that, like last year, inflation will start the year high and then cool off from there.
The 10-year Treasury bond yield climbed 9 basis points to 4.62%, remaining below its January high.
For now, investors seem to be taking an optimistic view, but they’d likely be spooked if the 10-year yield topped the 5% level it peaked at in 2023. Other than a single day in October 2023, the yield on the 10-year hasn’t traded above 5% since 2007.
In addition to the impact on stock ETFs, the trajectory of rates remains key for bond ETFs. The highly popular iShares 20+ Year Treasury Bond ETF (TLT) is holding onto a fractional gain of 0.2% in 2025, but that doesn’t give investors in the fund much comfort.
Last September, TLT was up more than 5% in mid-September but finished the year with a loss of more than 8%.
Expect more volatility in the long bond exchange-traded fund this year.
