Shares of the Industrial Select Sector SPDR Fund ( XLI ) are trading higher by 2.7% to $120.53 during Tuesday’s session, rebounding following recent weakness. The popular ETF is otherwise down 7.4% over the past week, as President Donald Trump's announcement of sweeping reciprocal tariffs triggered a broad market sell-off in recent sessions.

The industrial sector—highly sensitive to trade policy and global growth—is among the hardest hit over the past week, with XLI dropping alongside escalating concerns about weakening demand, higher costs and disrupted supply chains.

What Is XLI?

The Industrial Select Sector SPDR Fund ( XLI ) is an exchange-traded fund comprised of major U.S. companies involved in manufacturing, transportation, aerospace, defense and related services.

Key XLI holdings include heavyweights like General Electric Co ( GE ) , Boeing Co ( BA ) , Caterpillar Inc ( CAT ) , Honeywell International Inc ( HON ) and Union Pacific Corp ( UNP ) .

These companies form the backbone of the U.S. industrial economy and are deeply exposed to international trade, making XLI a direct casualty of tariff-related uncertainty.

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Why Are Tariffs Hitting XLI So Hard?

Industrial companies rely heavily on global supply chains, international sales and capital spending—all of which are under pressure in a tariff-fueled environment. Here's how the latest trade developments are dragging down XLI:

Supply Chain Disruptions: Many of XLI's components import raw materials, components and machinery from abroad—especially from China. New tariffs increase costs for manufacturers like Caterpillar ( CAT ) and Honeywell ( HON ), potentially squeezing profit margins and prompting some firms to delay production or pass costs on to customers.

Global Demand Weakens: With tariffs dampening global trade and business confidence, companies in the industrial sector are seeing reduced orders from overseas markets. Multinational firms like Boeing ( BA ) and 3M face declining demand in Asia and Europe, where retaliatory tariffs and economic uncertainty could weigh on spending and infrastructure investment.

Capex Pullbacks: Businesses across industries often cut back on capital expenditures when facing uncertainty. That means less investment in heavy equipment, machinery and transportation services—the very things XLI companies produce.

Transportation and Logistics Hit Hard: Railroads and freight carriers, including Union Pacific ( UNP ) and FedEx, could feel the sting of reduced trade volumes. If demand for shipping and freight services falls—both domestic and international—this could reflect slowing global economy.

Investor Sentiment and Risk Aversion: The industrial sector is closely tied to the business cycle. When investors fear a slowdown, they often rotate out of economically sensitive sectors like industrials.

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