The trader works on the floor of the New York Stock Exchange in New York City, USA on April 28, 2025.
Brendan McDermid | Reuters
Market analysts say that periods of extreme volatility in the stock market may be painful for investors, but such periods generally follow strong price and earnings when history is the guide.
In that sense, analysts said many investors are wise to not sell stocks and should probably buy more.
Also known as Wall Street Fear Gauge, the VIX Index measures market estimates of expected volatility in the S&P 500 Stock Index.
According to an analysis by the Wells Fargo Institute from January 1990 to April 16, 2025, when VIX reached a level showing “significant” volatility (a level showing “significant” volatility), the S&P 500 increased by 30% on average.
The odds for price-earnings ratios after 12 months were also above 90% during these periods, the analysis found.
In other words, volatility creates “potential opportunities,” Wells Fargo investment strategy analyst Edward Lee wrote in an analysis Monday.
“Concerns are normal, but history has taught us that higher periods of volatility have historically led to higher returns,” writes Lee.
So why is there a higher probability of inventory returns compared to periods of low volatility?
“Volatility” “could “align with a time of high drawdowns and an era of investor panic, both of which will have a higher chance of investing in success for the next 12 months,” Lee wrote in an email.
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The VIX reaches around 53, and among the top 1% of that index in history, Callie Cox, chief market strategist at Ritholtz Wealth Management, wrote last week.
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However, low expectations often lead to “relief rallies.” This is because people go back to stocks and back to stocks and the first news isn’t as bad as they thought it would be, Cox writes.
For example, since 1990, about half of the S&P 500’s 14+ sell-offs of over 14 people have ended within a week of VIX’s best closure, with the three finishing close on the best, Cox writes.
Such sales are usually “V-shaped,” meaning there is a sharp decline and then rebounds soon after, she said in an interview with CNBC.
But things could be different this time, she said.
“It was [still] “We’re trying to figure out where the new center of gravity is,” Cox said.
“The unexpected news portion of the sale is probably past us. If you’re a long-term investor, now is probably the time to start buying,” Cox said. “But you can’t expect this to be the bottom of a sale. And history isn’t necessarily the gospel.”
