Inflation Stress Test: How SPY, QQQ, VXUS and Global ETFs Responded
Compare how SPY, QQQ, VXUS, AVUV and global ETFs performed during the 2021–22 inflation spike and the 2025 tariff-driven inflation shock. Real data, two scenarios.
Inflation is one of the slower-moving macro shocks, but it can be structurally damaging because it changes interest rates, margins, valuations, and investor behavior over months and years.
Unlike a banking crisis or a geopolitical event — where markets react violently over days — an inflation shock works through portfolios over months and years. It reprices every asset class, changes the cost of capital, and forces central banks into decisions that can either extend the damage or accelerate the recovery.
The United States experienced this in two distinct phases. The first was the 2021–2022 CPI spike, where headline inflation peaked at 9.1% in June 2022 — the highest reading in over 40 years. The second is the 2025 tariff-driven resurgence, where a new wave of broad import duties reignited supply-side price pressures and created a fresh set of winners and losers across global equity markets.
These two inflation episodes look similar on the surface but they behaved very differently. Understanding why — and how your ETFs responded to each — is exactly what this analysis is designed to show.
Fast answer: In the 2021–22 inflation spike, value-heavy and commodity-linked ETFs such as AVUV, XIU, ISF, and VAS held up better than growth-heavy QQQ. In the 2025 tariff-driven window (Jan 2025–Jun 2026), VXUS, QQQ, and XIU led, showing that the source of inflation matters more than inflation alone.
Methodology
We compare ETF performance across two inflation stress windows using adjusted close price data from our CockroachDB database:
- 2021–2022 Inflation Spike: January 1, 2021 → December 31, 2022. This captures the full arc from the post-COVID stimulus boom through the rate-hike cycle that followed peak CPI.
- Jan 2025–Jun 2026 Tariff Resurgence: First available trading day of January 2025 → June 10, 2026. This captures the renewed inflationary pressure from broad US tariff escalation and its global ripple effects.
For each ETF we measure:
- Adjusted-close period return: the gain or loss across the window using adjusted close prices (accounts for splits and distributions where supported by the data provider)
- Maximum drawdown: the worst peak-to-trough decline during the window
- Annualized volatility: a measure of how unstable daily returns were
Important data notes: Returns are calculated using adjusted close prices, which account for splits and dividend distributions where supported by our data provider. For non-US ETFs (XIU.TO, XEQT.TO, ISF.LSE, IWDA.LSE, VAS.AU), returns reflect each ETF's local trading currency and are not converted to USD. Comparing cross-currency returns should account for this difference. ETF management fees are generally reflected in the adjusted close price series. This is not a forecast. It is a Historical Backtest stress-test comparison using real data.
Why these two episodes are different shocks
The 2021–2022 spike was primarily demand-pull: massive fiscal stimulus, supply chain bottlenecks, and a labor market running hot. The Federal Reserve responded by hiking rates from near-zero to above 5% in one of the most aggressive tightening cycles in modern history — US CPI peaked at 9.1% year-over-year in June 2022, the highest reading since November 1981. That repriced long-duration assets — especially growth tech stocks — severely.
The 2025 resurgence is primarily cost-push: broad import tariffs raising input costs across manufacturing and consumer goods. Yale Budget Lab estimated that 2025 tariffs could raise the price level by approximately 2.3% in the short run. A cost-push shock can be more regionally specific, especially when it comes from tariffs or supply-chain pressure, but its duration depends on policy choices and whether second-order inflation effects appear.
The data confirms this. Look at the table before we get into the per-ETF analysis.
Global comparison snapshot
| ETF | Region | 2021–22 Return | 2021–22 Max DD | Jan 2025–Jun 2026 Return | Jan 2025–Jun 2026 Max DD | Key insight |
|---|---|---|---|---|---|---|
| SPY | US Broad | +6.8% | -24.5% | +25.5% | -18.8% | Better positioned in 2025–26; still significant volatility in both |
| QQQ | US Growth | -12.9% | -35.1% | +36.6% | -22.8% | Worst 2021–22 performer; sharp growth-led rebound in 2025–26 |
| VXUS | Intl ex-US | -9.1% | -29.4% | +45.2% | -13.6% | Largest 2025–26 return; relatively shallow drawdown |
| AVUV | US Small Value | +36.5% | -20.6% | +28.3% | -25.1% | Best 2021–22 performer; deeper drawdown in 2025–26 |
| XEQT | Canada Global | +5.9% | -19.6% | +30.2% | -15.1% | Resilient across both; less extreme in either direction |
| XIU | Canada TSX | +19.2% | -16.4% | +39.8% | -12.4% | Consistent outperformer; low drawdowns in both |
| ISF | UK FTSE 100 | +21.3% | -9.3% | +30.6% | -12.7% | Strong inflation hedge; value-heavy composition |
| IWDA | MSCI World | +0.6% | -25.9% | +29.3% | -16.9% | US tech weight hurt 2021–22; recovered sharply in 2025–26 |
| VAS | Australia ASX | +13.5% | -15.2% | +9.6% | -13.2% | Consistent moderate performance; commodities helped in 2021–22 |
This chart alone tells a remarkable story. The ETFs that suffered the most during 2021–2022 — QQQ and VXUS — are among the best performers in 2025. The ETF that led in 2021–2022 — AVUV — faces a harder 2025 environment. And some of the most stable performers across both windows — XIU and ISF — are value-tilted, commodity-exposed indexes that don't make headlines but quietly absorb inflation shocks better than pure growth.
Let's go deeper on each one.
US ETFs
1. SPY: The broad-market anchor held, but barely
What it owns: State Street's SPY tracks the S&P 500, an index of 500 leading large-cap US companies covering approximately 80% of available US market capitalization. As of 2026, technology is the dominant sector at roughly 30%+ of the index, followed by financials, healthcare, and industrials.
Why inflation matters: SPY is a mixed bag in inflationary environments. Its energy and materials exposure can benefit from commodity spikes. But its massive technology and consumer discretionary weighting creates drag when rates rise aggressively to combat inflation. The 2021–22 window exposed this internal tension sharply.
What happened:
- 2021–2022 Inflation Spike: +6.8% return | -24.5% max drawdown | 19.5% annualized volatility
- Jan 2025–Jun 2026 Tariff Resurgence: +25.5% return | -18.8% max drawdown | 17.9% annualized volatility
Interpretation: SPY eked out a small positive return across the full 2021–22 window, but the path was brutal. Investors who started in January 2021 experienced a -24.5% drawdown as the Fed hiked rates. That is a gut-wrenching experience for someone who holds the "safe" S&P 500 index.
In 2025–26, SPY is performing much better because the inflation trigger is cost-push rather than demand-driven, and the Fed is not in the same aggressive hiking posture. However, at -18.8% max drawdown, even the 2025–26 window has shown that the index is not immune to inflation-related volatility.
Investor takeaway: SPY does not disappear into inflation shocks — it survives and eventually recovers — but it can experience drawdowns of -20 to -25% in severe inflation regimes. That is not a minor dip. It is the kind of drawdown that causes investors to sell at the worst possible moment.
2. QQQ: The most extreme swing of any ETF in this test
What it owns: Invesco QQQ tracks the Nasdaq-100, the 100 largest non-financial companies on the Nasdaq exchange. It is heavily concentrated in mega-cap technology, AI, and communication services.
Why inflation matters: QQQ is a classic long-duration growth asset. Much of its valuation is based on future cash flows discounted back at a given interest rate. When rates rise aggressively — as they did in 2022 — the discount rate rises and the present value of those future earnings collapses. This is the inflation-rates-duration mechanism that wiped out so many growth investors in 2022.
What happened:
- 2021–2022 Inflation Spike: -12.9% return | -35.1% max drawdown | 26.2% annualized volatility
- Jan 2025–Jun 2026 Tariff Resurgence: +36.6% return | -22.8% max drawdown | 22.4% annualized volatility
Interpretation: QQQ suffered the most in 2021–22, declining nearly 13% over the full window and hitting a -35.1% max drawdown at the worst point. That drawdown is in the same territory as some of the worst bear markets in US history.
However, the 2025–26 window tells a completely opposite story. QQQ is up 36.6% — the highest return among the US equity ETFs in this analysis (VXUS, while US-listed, tracks international markets) — because the tariff-driven inflation regime does not trigger the same aggressive rate-hike response. AI infrastructure spending and mega-cap tech earnings growth have continued to dominate the Nasdaq narrative.
The contrast is dramatic: the same ETF, two inflation shocks, completely inverted outcomes.
Investor takeaway: If you hold QQQ, your biggest inflation risk is not consumer prices themselves — it is what central banks do in response. A hike-heavy central bank response is devastating for QQQ. A tariff-driven inflation spike without aggressive monetary tightening is not.
3. VXUS: The biggest surprise in this entire dataset
What it owns: Vanguard VXUS holds more than 7,000 stocks outside the United States, with exposure to Europe (~37%), Pacific developed markets (~27%), and Emerging Markets (~26%).
Why inflation matters: VXUS reacts to inflation very differently depending on the source. In 2021–22, the shock was primarily US-driven, but the US dollar strengthened significantly as the Fed hiked aggressively. A stronger dollar creates a headwind for international equities measured in USD. European energy importers also suffered directly from the Russia/Ukraine commodity disruption that ran parallel to the inflation story.
What happened:
- 2021–2022 Inflation Spike: -9.1% return | -29.4% max drawdown | 17.8% annualized volatility
- Jan 2025–Jun 2026 Tariff Resurgence: +45.2% return | -13.6% max drawdown | 17.2% annualized volatility
Interpretation: VXUS is the most dramatic reversal in this dataset. In 2021–22 it was the second-worst US-listed ETF, losing 9.1% over the full window and hitting a -29.4% drawdown. In 2025–26 it produced the highest total return of any ETF in this analysis at +45.2%, with a relatively shallow -13.6% maximum drawdown.
Why? Tariff-driven US inflation weakens the US dollar relative to other currencies, which reverses the currency headwind that crushed VXUS in 2022. European and Asian economies, while affected by US trade policy, are not experiencing the same inflation-rate-hike cycle. Their equity markets are starting from cheaper valuations and have benefitted from the dollar's relative weakness.
Investor takeaway: Geographic diversification works differently depending on the source of the shock. In a Fed-driven rate hike cycle, international equity funds can struggle due to dollar strength. In a tariff-driven inflation episode, they may outperform precisely because the inflationary pressure is US-centric and the dollar weakens.
4. AVUV: The 2021–22 inflation hedge that reversed in 2025
What it owns: Avantis US Small Cap Value ETF selects US small-cap companies screened for value characteristics and profitability. It tilts toward sectors like financials, industrials, energy, and materials — naturally more exposed to domestic economic conditions than mega-cap tech.
Why inflation matters: AVUV has a structural advantage in demand-pull inflation environments. Rising commodity prices and revenue inflation directly benefit its energy, materials, and industrial holdings. Its value tilt means it doesn't carry the same duration risk as growth stocks. And rising rates can actually support its financial sector holdings by widening lending margins.
What happened:
- 2021–2022 Inflation Spike: +36.5% return | -20.6% max drawdown | 25.6% annualized volatility
- Jan 2025–Jun 2026 Tariff Resurgence: +28.3% return | -25.1% max drawdown | 21.6% annualized volatility
Interpretation: AVUV was the single best-performing ETF in the 2021–22 window by a wide margin. While QQQ was losing 13%, AVUV gained 36.5%. This is the value-factor premium expressing itself under inflationary stress: commodity exposure, low duration, domestic revenue, and financial sector leverage all worked in its favor.
In 2025, AVUV still produced a strong +28.3% return, but with a notably higher -25.1% max drawdown. Tariff-driven inflation introduces uncertainty for small-cap industrials and manufacturers who rely on imported materials. Their input costs can rise faster than their output prices, which squeezes margins in a way that pure energy price inflation does not.
Investor takeaway: AVUV has functioned as a powerful inflation hedge in demand-pull environments. But small-cap value is not uniformly defensive in all inflation types. When tariffs raise input costs for small manufacturers, the picture becomes more complicated.
Canadian ETFs
Canadian equity markets have a different inflation profile from the US. The TSX Composite is naturally heavier in energy, materials, financials, and real estate — sectors that often benefit from or resist inflationary regimes differently than US tech-heavy indexes.
5. XEQT: Canada's diversified global portfolio — quietly resilient
What it owns: iShares Core Equity ETF Portfolio (XEQT) is a one-ticket global equity solution for Canadian investors, holding roughly 45% US equities, 25% Canadian equities, 20% international developed markets, and 10% emerging markets.
What happened:
- 2021–2022 Inflation Spike: +5.9% return | -19.6% max drawdown | 14.1% annualized volatility
- Jan 2025–Jun 2026 Tariff Resurgence: +30.2% return | -15.1% max drawdown | 15.2% annualized volatility
Interpretation: XEQT delivered one of the more stable risk-adjusted profiles across both windows. With moderate drawdowns and lower volatility compared with concentrated US growth exposure, it avoided the extremes that hit QQQ and VXUS in 2021–22. The Canadian weighting provides a natural commodity buffer. The global diversification prevents any single regional regime from dominating.
For Canadian investors building a core position, XEQT's behavior during inflation stress — lower drawdowns, lower volatility, still positive returns — reflects exactly what a diversified one-ticket solution is designed to do.
6. XIU: Canada's TSX 60 — a quiet inflation outperformer
What it owns: iShares S&P/TSX 60 ETF (XIU) tracks the 60 largest Canadian equities. It is heavily weighted toward financials, energy, and materials — three sectors that historically benefit from or directly profit from inflationary regimes.
What happened:
- 2021–2022 Inflation Spike: +19.2% return | -16.4% max drawdown | 13.4% annualized volatility
- Jan 2025–Jun 2026 Tariff Resurgence: +39.8% return | -12.4% max drawdown | 14.1% annualized volatility
Interpretation: XIU produced the most consistently strong risk-adjusted returns across both windows — the second-best total return in 2021–22 (+19.2%), and the second-best total return in the Jan 2025–Jun 2026 window (+39.8%), with the shallowest maximum drawdown in the Jan 2025–Jun 2026 window at just -12.4%.
Canadian banks, energy producers, and materials companies all tend to benefit from inflation in different ways. Banks earn more on their lending spreads when rates rise. Energy producers receive higher prices for oil and gas. Materials companies see revenue rise with commodity prices. This sector composition makes XIU a natural inflation hedge compared to US tech-heavy indexes.
For investors with Canadian accounts, XIU's performance across both inflation regimes is a case study in how commodity-adjacent equity markets can behave differently from technology-driven ones.
Investor takeaway: XIU's low drawdowns and strong absolute returns across both windows make it a compelling example of how sector composition — not just geography — drives inflation resilience.
UK and European ETFs
European equity markets experienced a different version of the 2021–22 inflation shock — one compounded by the Russia/Ukraine war, energy supply disruption, and the ECB's later and more cautious rate response. In 2025, the dynamics have shifted, with European markets benefitting from cheaper valuations and relative dollar weakness.
7. ISF: UK FTSE 100 — a value-heavy inflation buffer
What it owns: iShares Core FTSE 100 UCITS ETF (ISF) tracks the 100 largest UK-listed companies. The FTSE 100 is notably different from the S&P 500 in composition: it is dominated by energy (Shell, BP), mining (Rio Tinto, Anglo American), financials (HSBC, Barclays), and pharmaceuticals (AstraZeneca, GSK). Technology is a small weight.
What happened:
- 2021–2022 Inflation Spike: +21.3% return | -9.3% max drawdown | 14.5% annualized volatility
- Jan 2025–Jun 2026 Tariff Resurgence: +30.6% return | -12.7% max drawdown | 12.5% annualized volatility
Interpretation: ISF delivered the second-best 2021–22 return at +21.3% with the lowest max drawdown of any ETF in the study at just -9.3%. This makes intuitive sense: when oil is expensive and commodity prices are high, Shell, BP, and the mining giants directly benefit. When rates rise, HSBC and Barclays earn wider net interest margins. The FTSE 100's sector composition is structurally more aligned with inflationary regimes than the Nasdaq or even the S&P 500.
In 2025–26, ISF continues to perform well (+30.6%), with its lowest volatility of either window at 12.5% — suggesting that as tariff-driven inflation resumes, the same commodity-financial-heavy composition is once again providing a buffer.
Investor takeaway: UK and European value-heavy equity markets can serve as a natural inflation hedge within a globally diversified portfolio. ISF's sector composition is almost the inverse of QQQ's exposure.
8. IWDA: MSCI World — the US weight drag in 2021–22
What it owns: iShares Core MSCI World UCITS ETF (IWDA) tracks the MSCI World index — approximately 1,500 large and mid-cap stocks across 23 developed markets. The US represents roughly 70% of the index, with the remaining 30% spread across Europe, Japan, and other developed markets.
What happened:
- 2021–2022 Inflation Spike: +0.6% return | -25.9% max drawdown | 18.3% annualized volatility
- Jan 2025–Jun 2026 Tariff Resurgence: +29.3% return | -16.9% max drawdown | 15.4% annualized volatility
Interpretation: IWDA's 2021–22 result was heavily influenced by its 70% US weight, which dragged it down as US tech stocks repriced. Its -25.9% max drawdown was deeper than SPY's (-24.5%), reflecting US growth exposure combined with international and currency effects for non-US-dollar holders.
In 2025–26, IWDA's international component has become a tailwind. The non-US 30% is outperforming, and the relative weakness of the US dollar benefits the international portion. Its +29.3% return reflects a meaningful recovery, with improved drawdown characteristics.
Investor takeaway: A "world" ETF is still predominantly a US equity ETF. During a Fed-driven hiking cycle, IWDA carries significant US rate-sensitivity. In a regime where non-US markets outperform due to dollar weakness, IWDA benefits but less than a pure international fund like VXUS.
Australian ETFs
Australia's market has unique inflation characteristics. The ASX is commodity-rich (iron ore, coal, gold, lithium), bank-heavy, and relatively insulated from US tech sector volatility. Australian inflation in 2021–22 was real but lagged the US peak, and the Reserve Bank of Australia raised rates more slowly.
9. VAS: ASX 300 — consistent, moderate, resource-supported
What it owns: Vanguard Australian Shares ETF (VAS) tracks the S&P/ASX 300 index, representing approximately 300 Australian-listed companies. Financials (the big four banks) and materials (mining giants like BHP, Rio Tinto) dominate the composition.
What happened:
- 2021–2022 Inflation Spike: +13.5% return | -15.2% max drawdown | 14.0% annualized volatility
- Jan 2025–Jun 2026 Tariff Resurgence: +9.6% return | -13.2% max drawdown | 13.1% annualized volatility
Interpretation: VAS delivered positive returns in both inflation windows — one of only a few ETFs to do so — with consistently moderate drawdowns and one of the more stable volatility profiles across both periods. Iron ore prices, gold, and bank earnings all provided natural support during the 2021–22 commodity-driven inflationary period.
The 2025 return is lower at +9.6% because Australian commodity exports face some demand risk from tariff-related slowdown in global trade, particularly Chinese commodity demand. However, the drawdown and volatility remain remarkably low compared to US-centric ETFs.
Investor takeaway: For investors seeking consistent, moderate returns with low drawdowns across inflation regimes, VAS's commodity and financial composition provides a different kind of resilience — not high upside, but remarkably stable downside behavior.
The four biggest takeaways
1. The type of inflation matters more than the inflation itself.
The same ETF can produce completely opposite results in two different inflation environments. QQQ fell -12.9% across 2021–22 and is up +36.6% in 2025. The difference is not the price level — it is the central bank response. Rate-hike-driven inflation destroyed growth stocks. Tariff-driven inflation, without the same aggressive rate response, did not.
2. Value and commodity exposure provided a structural hedge in 2021–22 — but not universally in 2025.
AVUV, XIU, and ISF were the best performers in 2021–22 because their sector compositions are naturally aligned with inflationary regimes. In 2025, XIU and ISF continue to perform strongly, but AVUV faces more headwinds because tariffs hurt small-cap manufacturers differently than energy price inflation does.
3. Geographic diversification is not a free lunch — but it works differently across regimes.
VXUS and XEQT both suffered during the 2021–22 Fed hiking cycle due to dollar strength and European energy exposure. In 2025, VXUS is the single best-performing ETF because dollar weakness reversed that dynamic. The lesson is not that international diversification is good or bad — it is that it works differently depending on the source of the inflationary pressure.
4. Drawdown profiles are as important as return profiles.
ISF generated +21.3% in 2021–22 with only -9.3% max drawdown. QQQ generated -12.9% in 2021–22 with -35.1% max drawdown. That 26-percentage-point difference in drawdown experience is not a minor statistical artifact — it is the difference between an investor staying in their position and an investor panic-selling at the bottom. Understanding your drawdown tolerance is not optional when analyzing inflation stress.
What this does not mean
This analysis does not mean you should sell QQQ, buy XIU, and ignore the rest. A stress test shows how specific portfolios behaved under specific historical conditions. A different crisis — a credit crunch, a pandemic shock, a deflation regime, or an AI-bubble collapse — would produce a completely different ranking.
The point of comparing two inflation regimes is not to pick winners. It is to understand why they behaved differently, so that when the next shock arrives — in whatever form it takes — you can recognize which part of your portfolio is most exposed before you're looking at a 25% drawdown.
Test your own portfolio against inflation scenarios
Every portfolio combination — the exact weights, the ETFs chosen, the regional exposure — will respond differently. The data above shows benchmark behavior. Your specific allocation may be more or less concentrated in the sectors that drive these results.
Use StressTest.pro to run your actual holdings through both inflation windows. See which assets drove drawdowns, which ones provided resilience, and whether your geographic or factor exposure aligns with your risk tolerance.
Stress test your portfolio against inflation scenarios- Explore more StressTest Resources
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Sources and further reading
Macro data and research
- BLS CPI News Release — June 2022 — US CPI peaked at 9.1% YoY in June 2022, the highest since November 1981
- Federal Reserve — FOMC Minutes, May 2023 — Fed hiked to 5.00%–5.25% target range
- Yale Budget Lab — Fiscal and Economic Effects of 2025 Tariffs — Estimated 2.3% short-run price level impact from 2025 tariffs
- St. Louis Fed — How Tariffs Are Affecting Prices in 2025 — Analysis of tariff-driven inflationary effects
- S&P Global — S&P 500 Index — Index methodology and sector weights
Related StressTest.pro analysis
- SPY Risk Analysis
- QQQ Risk Analysis
- VXUS Risk Analysis
- AVUV Risk Analysis
- StressTest.pro Historical Backtest Engine
Disclaimer: This article is for educational and informational purposes only. stresstest.pro does not provide investment, legal, tax, or financial advice. Past performance does not guarantee future results. All data is sourced from historical adjusted close price records and is subject to the inherent limitations of backtesting methodology. Non-US ETF returns are shown in local trading currency and have not been converted to USD.