Peak Fear or Buying Opportunity? What the VIX Is Really Telling Us

• The S&P 500’s testing its 50-day moving average to the downside.

• Investors are increasingly worried about interest rate hikes.

• A VIX break above 27.5 has typically created a buying opportunity.

As escalating Middle East tensions send oil prices higher and the stocks lower, it’s easy to get swept up in the market panic…

Over the last few weeks, Wall Street has become increasingly anxious over the stock market’s direction. While there initially seemed to be positive progress in peace negotiations between the U.S. and Iran, the outlook quickly soured when talks stalled and the U.S. walked away from the negotiating table.

Compounding the problem was the burial of Iran’s former leader, Ayatollah Ali Khamenei, who was killed in the initial strikes in late February. Toward the end of the weeklong mourning process, the Islamic Revolutionary Guard Corps launched an attack on ships in the Strait of Hormuz. This triggered a swift U.S. response, ratcheting up Middle East tensions once more.

As this geopolitical back-and-forth has built over the last couple of weeks, the stock market has increasingly wavered. In fact, the S&P 500 Index just broke down through its 50-day moving average for the first time since early April…

Wall Street is deeply worried about the potential inflation fallout. Oil prices dropped sharply in June, but as friction has increased, they are climbing back up. If rising crude costs drive headline inflation growth back up, it could cause Federal Reserve policymakers to rethink their current stance and potentially raise interest rates.

As you can see in the chart above, this isn’t the first time the market has wavered during the current bull run. It successfully overcame notable slides in 2023, 2024, 2025, and earlier this year. Yet, based on recent data, the baseline level of investor fear remains normal. If volatility starts to jump from here, it could trigger a compelling buying opportunity in the S&P 500.

But don’t take my word for it, let’s look at what the data’s telling us…

The Chicago Board of Options Exchange’s Volatility Index (VIX) is often referred to as the "Fear Index." It measures investors’ expectations for volatility over the next 30 days based on the prices of short-term S&P 500 index options. Essentially, the VIX provides a real-time snapshot of market sentiment and the anticipated magnitude of price fluctuations. A falling VIX is typically a sign of complacency, while a rising one signals fear.

The gauge has been increasing of late, but it hasn’t yet triggered a buy signal…

The chart above tracks the VIX's price action since the start of 2021—a starting date chosen because it removes the extreme, anomalous fear surrounding COVID-19. Since the gauge’s creation in 1993, its long-term average level has been 19.90.

Yesterday, the VIX closed around 19.6. While that is elevated compared to the start of July, and a clear sign of rising concern, it isn’t a signal of outright panic. When we look at the historical chart, we notice 11 instances where the gauge experienced a sharp spike above 27.5 before rapidly declining. History tells us that until the measure experiences a close at or above that 27.5 threshold, true market capitulation hasn’t set in.

To see what happens next, I analyzed the S&P 500’s total return (with dividends reinvested) following VIX closes above 27.5 across the 3-, 6-, 12-, and 24-month time frames. Here is what the historical data shows…

To find these trends, I combined the historical performance into an average return and calculated a success rate based on how often the returns were positive. As you can see, the typical result one year later is perfectly in line with the market's historical average. Over a two-year horizon, the index significantly outperforms, boasting a 100% success rate.

So, while the signs are building that fear is rising, we are not yet near peak panic. Based on the VIX, when peak fear finally arrives, it shouldn't be a reason to bail. It will likely indicate the investor capitulation needed to clear the runway for the next leg of this S&P 500 bull rally.

Five Stories Moving the Market:

Semiconductor manufacturer Intel forecast quarterly profit and revenue above estimates; Intel expects third-quarter revenue between $15.8 billion and $16.8 billion, compared with analysts' average estimate of $15.1 billion, according to data compiled by LSEG – Reuters. (Why you should care – CFO David Zinsner said Intel has signed long-term agreements ranging from three to five years with customers for data center CPUs and specialized XPUs)

Japan’s consumer price index excluding fresh food rose 1.6% in June from a year earlier, according to the Ministry of Internal Affairs and Communications; the increase compared to May was driven by energy costs – Bloomberg. (Why you should care – the result likely supports the Bank of Japan leaving interest rates unchanged at the upcoming monetary policy meeting) 

The Pentagon announced a nearly $7 billion, up-to-10-year agreement with Oracle ​to consolidate the department's on-premises software licenses into ‌a single contract, the latest move by the Pentagon's technology chief to cut costs by eliminating fragmented purchasing – Reuters. (Why you should care – the government signed a similar contract with ServiceNow late last year)

European Central Bank officials are prepared to raise borrowing costs in September unless the euro-zone inflation outlook improves markedly; Governing Council members anticipate that another quarter-point increase will be needed to contain consumer-price pressures – Bloomberg. (Why you should care – President Christine Lagarde said inflation risks remain to the upside)

Brent crude oil prices jumped above $100 a barrel for the first time since May as U.S. President Donald Trump said he was weighing a “massive attack” on Iran and tensions escalated across the Middle East – FT. (Why you should care – U.S. military assets in the Middle East are increasing, in a similar prelude to the February strikes on Iran) 

Economic Calendar:

Earnings: AXP, BAH, CHTR, HCA, NEE, SLB, THC, VZ

U.K. – Retail Sales for June (2 a.m.)

Eurozone – GfK Consumer Climate for August (3 a.m.)

Eurozone – HCOB Eurozone Manufacturing, Services, Composite PMI (Preliminary) for July (4 a.m.)

U.K. – S&P Global U.K. Manufacturing, Services, Composite PMI (Preliminary) for July (4:30 a.m.)

U.S. – Building Permits for June (8 a.m.)

U.S. – S&P Global U.S. Manufacturing, Services, Composite PMI for July (9:45 a.m.)

U.S. – New Home Sales for June (10 a.m.)

ECB’s Lane (Chief Economist) Speaks (11:30 a.m.)

U.S. - Baker Hughes Rig Count (1 p.m.)

U.S. - CFTC’s Commitment of Traders Report (3:30 p.m.)

Fed Releases Balance Sheet Updates on Commercial Banks (4:15 p.m.)