History of Market Volatility Spikes Shows S&P 500 Should Be Higher a Year After This Turmoil

By Steven Orlowski, CFP, CNPR

In times of heightened market volatility, fear tends to dominate headlines and investor sentiment. But history tells a more encouraging story for long-term investors: when volatility spikes, the S&P 500 typically rebounds — often dramatically — over the following 12 months.

With the recent surge in volatility amid geopolitical tensions, interest rate uncertainty, and stubborn inflation readings, investors may be questioning whether they should reduce exposure to equities. But a look back at previous volatility shocks offers valuable perspective: these are often buying opportunities, not times to flee the market.

VIX: The Market’s “Fear Gauge”

The CBOE Volatility Index (VIX), often called Wall Street's “fear gauge,” measures expected market volatility based on options pricing for the S&P 500. Historically, spikes in the VIX above 30 have coincided with periods of severe market stress — and, paradoxically, with future gains.

For instance:

• March 2020 (COVID-19 crash): The VIX hit an all-time closing high above 82. One year later, the S&P 500 was up nearly 75%.

• December 2018 (Fed tightening fears): The VIX spiked above 36. Twelve months later, the index gained nearly 29%.

• August 2011 (Eurozone crisis and U.S. credit downgrade): The VIX surged to 48. One year later, the S&P 500 climbed about 25%.

In nearly every instance since the early 1990s when the VIX has spiked above 30, the S&P 500 has been higher a year later — often significantly.

Understanding the Pattern

Why does this pattern persist? Part of the answer lies in behavioral finance. Panic tends to be short-lived, while economic fundamentals and earnings trends reassert themselves over time. When fear peaks, it usually signals capitulation — a point at which most bad news is priced in, and buyers begin to return.

Moreover, volatility spikes are typically associated with forced selling, risk-off repositioning, and sharp declines — all of which can present opportunities for disciplined, long-term investors.

What About Today?

As of this writing, the VIX has again crossed into the mid-20s and briefly touched 30 amid rising geopolitical tensions and uncertain Federal Reserve policy. The S&P 500 has pulled back from recent highs, raising concerns of a deeper correction.

But if history is any guide, today’s turmoil could be setting the stage for another 12-month rally. While no indicator is foolproof, the consistency of this pattern across decades, market regimes, and macro environments is hard to ignore.

Investing Through Volatility

Timing the bottom is nearly impossible, but positioning for the rebound is often within reach. Here are a few principles to consider during periods of elevated market stress:

• Stick to your long-term strategy. Trying to trade in and out of markets based on short-term fear can lead to costly mistakes.

• Rebalance strategically. Volatility may create opportunities to buy quality assets at discounted prices.

• Diversify. A mix of asset classes can help cushion short-term swings and smooth returns over time.

Conclusion

History doesn’t repeat exactly — but it often rhymes. And the rhyme of the market’s response to volatility spikes has been remarkably consistent: after fear peaks, recovery follows.

For investors able to look past the noise and stay the course, the message is clear: today’s market turbulence may be tomorrow’s missed opportunity — or, for the patient, a turning point toward long-term gains.