Market analysts suggest that while periods of extreme volatility in the stock market can be distressing for investors, they typically precede strong stock performance, according to historical data.
Investors are being advised against selling off their stocks and are even encouraged to consider increasing their holdings during these turbulent times.
The VIX index, often referred to as Wall Street’s fear gauge, assesses the market’s expectations for volatility concerning the S&P 500 index.
Historical analysis by Wells Fargo Investment Institute, covering the period from January 1990 to April 16, 2025, indicates that whenever the VIX exceeds 40, signifying “significant” volatility, the S&P 500 has averaged a return of 30% over the following year.
Moreover, the analysis shows that the likelihood of positive stock returns within a year during such spikes is greater than 90%.
Edward Lee, an investment strategy analyst at Wells Fargo, pointed out that volatility presents a “potential opportunity.”
“While feelings of concern are common, historical patterns show that higher volatility often correlates with greater returns,” Lee explained in a recent analysis.
This begs the question: why are positive outcomes more likely during periods of high volatility compared to calmer times?
Lee noted that volatility is frequently associated with significant market drawdowns and investor anxiety, conditions that enhance the potential for successful investments over the subsequent year.
Recent Market Volatility Following Trump Tariff Announcements
Market fluctuations surged in early April after President Donald Trump announced unexpectedly high tariffs on specific countries, leading the S&P 500 to experience an 11% decline in just two days.
As a result, the VIX surged to about 53, marking one of the highest closes in its history. Callie Cox, chief market strategist at Ritholtz Wealth Management, highlighted this finding last week.
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Cox further pointed out that low market expectations often set the stage for “relief rallies,” where investors rush back into the market as the news proves less severe than anticipated.
Historically, approximately half of the S&P 500’s 14 selloffs of 10% or more have concluded within a week of the VIX’s peak close, with three instances ending on the very day of that peak, Cox noted.
These selloffs are typically characterized as “V-shaped,” marked by a sharp decline followed by a swift recovery, she told Finance Newso.
However, Cox cautioned that the current situation might differ from past patterns.
She stated, “We are still trying to understand where the new equilibrium lies regarding trade policy.”
“While the immediate shock of the sell-off may have passed, long-term investors should consider this an opportune time to start buying,” she advised. “However, it’s important to recognize that this may not mark the absolute low in the sell-off, and historical trends are not infallible.”
