Don’t Fear the VIX

“Be fearful when others are greedy and greedy when others are fearful.” - Warren Buffett

The extreme market volatility of the past few weeks has, at the very least, kept us interested. Investors are concerned that an economic slowdown could be tipped into recession territory with the current Trump administration’s tariffs set to take effect. We’ve seen significant market moves, both up and down, based on tariff talk from Washington.

The S&P 500 Index (S&P 500, S&P) was down almost 20% from its February high before rallying over the past week or so, but there remains plenty of uncertainty in the equity market. As of this writing, the S&P is still down 12% from its high.  

The most widely used gauge of fear in the market is the CBOE Volatility Index, or VIX. This Index uses implied volatility in the options market to measure expected volatility in equities. Going back to 1990, the average reading on the VIX has been approximately 19,* but in times of uncertainty or fear, this can spike dramatically. Coincidentally, on April 8, 2025, the VIX closed at over 52, which was the highest level seen since the onset of COVID-19 in March of 2020. Since 1990, there have been five periods with the VIX trading over 40. We looked at each.

In 1998, the Russian financial crisis led to the collapse of Long Term Capital Management, a highly leveraged hedge fund that bet on global bond spreads, which further led to a flight to quality and a significant drop in the dollar. The Federal Reserve stepped in and cut rates which ultimately calmed markets after a short correction in the S&P.

In 2002, we were still struggling through the after effects of the dot-com bubble, along with high profile bankruptcies and scandals at companies like WorldCom and Enron.  

The VIX started moving up significantly in September and October 2008 as the global financial crisis unfolded, with the Index peaking at 80 in November. The S&P lost approximately 50% before bottoming in early 2009. Then in 2011, a debt-ceiling standoff and a downgrade of US government debt caused the VIX to spike again.

In recent history, we all remember what happened in March of 2020, when the VIX jumped to 82 on March 16 of that year, before record setting fiscal stimulus was unleashed.

Certainly, all of these periods were characterized by great uncertainty. But what happened AFTER the VIX spiked in those cases? We asked a simple question: Once the VIX peaked, where was the S&P one year later and three years later? That data is summarized in the table below:

Source: Federal Reserve Bank of St. Louis, Bloomberg, date range 01/01/1990 - 04/11/2025
Average over the period was 19.48%.

For each period, the S&P was higher both one year and three years later, by an average of 38% over one year and 52% over three years.

We may very well see continued volatility in this market. For example in 2008, the VIX eclipsed 40% in late September and remained stubbornly high throughout October and November. However, if history is a guide, the spike in the VIX may signal a buying opportunity for patient investors.

Important Disclosures & Definitions

* Source: Federal Reserve Bank of St. Louis, Bloomberg

CBOE Volatility Index (VIX): designed to produce a measure of constant, 30-day expected volatility of the US stock market, derived from real-time, mid-quote prices of S&P 500 Index call and put options. On a global basis, it is one of the most recognized measures of volatility -- widely reported by financial media and closely followed by a variety of market participants as a daily market indicator.

S&P 500 Index: widely regarded as the best single gauge of large-cap US equities. The index includes 500 leading companies and covers approximately 80% of available market capitalization.

One may not invest directly in an index.

AAI000931  04/22/2026