A Blanket of Calm Gives Stocks a Double-Digit Runway
The market is shrugging off the Iran conflict. It's looking past the fear of AI spending not paying off. It's not worried about a software apocalypse sending stocks lower.
That's creating a steady rally... one without many big swings in either direction.
For the first time since January, the market's "fear gauge" isn't showing much fear at all.
If you feel like this can't last forever, you're right. Big price swings and volatility will eventually return.
But that doesn't mean chaos is right around the corner. History shows this blanket of calm can last...
By looking into the market's fear gauge, we can see that the recent calm has been a good thing for investors since 1990. Periods like this have led to an 11% gain over the following year.
The "fear gauge" I'm talking about is the CBOE Volatility Index ("VIX").
When prices start to swing wildly, it means investor uncertainty is spreading. When fear of what's coming next rises, the VIX moves higher with it.
During extreme panics, the VIX can rise above 40, as we saw during the tariff sell-off in April 2025. In March 2020, the VIX rose above 80 as COVID-19 news rocked the market.
But when things are steady, the VIX tends to be between 15 and 25. Anything below 15 indicates a very calm market.
That's where we're at today. After jumping above 30 earlier this year, the VIX fell back below 15 this month...
As we've seen, the panic earlier in the year was a great buying opportunity. The market has been rallying ever since.
But if you think the upside potential is over, that's not the case at all...
Take today, for example. We're going from a market with a lot of fear in stocks to one where investors are more confident... all in a few short months. That has been a powerful indicator over the past 36 years.
It turns out that buying after the VIX drops below 15 usually leads to outperformance over the next year...
The S&P 500 Index has gone up 8.8% a year since 1990. That's a great return over three-plus decades.
But buying in a calm market does even better...
Similar setups have led to gains of 2% in three months, 4.5% in six months, and 10.6% over a year.
The three-month gain is right around the long-term buy-and-hold return. The same is true for six months. But we can see this setup starts to outperform over the course of a year.
Let's also look at the win rates over these periods...
For the three-month window, stocks were up 68.1% of the time. That's not great, but it's not terrible, either.
However, the story gets more compelling over six months and a year. The win rate jumps to 80.3% over six months and 89.5% over a year.
Those rates are way too good to pass up.
In short, yes, the market is brushing off a lot of concerns. That has caused the VIX to fall below 15. But that doesn't mean you should make a contrarian bet against the market right now.
The opposite is true. Similar cases have led to gains 90% of the time over the next year. And you want to be long for that opportunity.
Stay invested as the bull market continues.
Good investing,
Chris Igou
Further Reading
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Market Notes
HIGHS AND LOWS
NEW HIGHS OF NOTE LAST WEEK
Revvity (RVTY)... healthcare
Tenet Healthcare (THC)... healthcare
Merck (MRK)... pharmaceuticals
Vertex Pharmaceuticals (VRTX)... pharmaceuticals
Becton Dickinson (BDX)... needles and syringes
Argenx (ARGX)... biopharmaceuticals
Regeneron Pharmaceuticals (REGN)... biotechnology
Target (TGT)... big-box retailer
International Seaways (INSW)... transportation
LandBridge (LB)... oil and gas royalties
Centerra Gold (CGAU)... gold miner
SSR Mining (SSRM)... diversified mining
Freeport-McMoRan (FCX)... diversified mining
BHP (BHP)... natural resources
NEW LOWS OF NOTE LAST WEEK
AppLovin (APP)... advertising
Boyd Group Services (BGSI)... repair centers
Public Service Enterprise (PEG)... electric and natural gas utility