Interest-Rate Volatility: A New Normal for Investors

As the financial landscape continues to evolve, investors are increasingly aware of the various market risks that lie ahead, despite a noteworthy decrease in anxiety over higher interest rates. Phil Camporeale, a portfolio manager for J.P. Morgan Asset Management’s global allocation strategy, recently shared insights indicating that interest-rate volatility appears to be “normalizing.” However, he warns that inflation remains a potential threat that could surface again as we enter the latter half of the year.

Inflation Concerns: The Elephant in the Room

According to Camporeale, the primary risk currently facing investors is the possibility that inflation could surge unexpectedly as economic conditions change. Should inflation not only remain persistent but also escalate, it could result from factors such as increased wage growth or rising prices within critical sectors like lodging and restaurants. “The biggest risk is that the inflation story kind of rears its ugly head again in the second half of this year,” he explained.

This sentiment resonates strongly with recent market behaviors. On a recent Friday, U.S. stocks experienced a drop, with the Dow Jones Industrial Average logging its worst weekly performance since October. Investors’ apprehensions are compounded by a survey indicating that consumer inflation expectations are climbing, driven by concerns regarding tariffs imposed by President Donald Trump.

Market Reactions and Economic Indicators

In the near future, investors will have their eyes trained on fresh economic data, including insights from the Federal Reserve’s preferred measure of inflation: the personal-consumption expenditures (PCE) price index, set to be released shortly. In an effort to stabilize financial markets, rate volatility has now fallen to levels reminiscent of early 2022, before the Fed initiated an aggressive rate-hiking cycle designed to curb soaring inflation rates. Camporeale notes, “Nothing makes equity investors more worried than interest-rate volatility.” However, he points out that the stabilization of rate volatility is now a notable feature of the investment landscape.

Fed’s Current Stance

Presently, the Federal Reserve is holding steady with its benchmark rate after pausing on rate cuts since January. According to Camporeale, “Nobody is saying that the Federal Reserve needs to do anything right now,” signifying a shift from the previous investor fixation on the Fed’s every move. Conversations are now refocusing on the fundamental drivers of the equity market rather than solely the interest rates dictated by the Fed.

Consumer Sentiment and Inflation Expectations

Recently released data from the University of Michigan revealed that consumer sentiment regarding inflation has worsened. Joanne Hsu, director of the survey, stated, “Consumers’ expectations for the path of inflation worsened considerably this month; they are clearly bracing for a resurgence in inflation.” This increase in inflation expectations, while not immediately alarming, could become problematic for policymakers if these perceptions persist.

Looking Ahead in the Financial Landscape

Upcoming readings on U.S. inflation from the Fed’s preferred PCE gauge are highly anticipated, and analysts are keen to see how the Fed’s policy might unfold in the coming months. As Sameer Samana, head of global equities and real assets at Wells Fargo Investment Institute, commented, “The Fed’s policy may have reached the place where they might just be doing nothing for a while.”

Even with the recent decline in stock prices, it’s worth noting that the S&P 500 is still close to its all-time peak achieved on February 19. As of the last analysis, the benchmark large-cap index ended at 6,013.13, only 2.1% below its record high. The current bull market has shown broadening, even as the information technology sector has not been leading this resurgence. Overall, the S&P 500 has risen 2.2% thus far in 2025, even as the tech sector has declined slightly—by 0.3%—this year to date.

Final Considerations for Investors

As the financial market landscape remains complex and volatile, investors are advised to stay vigilant for both signs of inflation resurgence and critical earnings reports from pivotal tech companies—such as Nvidia Corporation, set to release its quarterly earnings on February 26. Building a well-informed strategy that accommodates market fluctuations, interest rate considerations, and inflation trends will be crucial for navigating this evolving economic environment.