The S&P 500(SNPINDEX: ^GSPC) has now fallen for four consecutive weeks, placing the index nearly 6% below its all-time high. With the exception of energy stocks, this year has proven challenging for equities broadly, though some sectors have experienced more pronounced declines.
The information technology sector is down 12% from its peak, as investors express concerns about the sustainability of artificial intelligence (AI) spending.
The consumer discretionary sector sits 12% below its high, influenced by worries over tariffs and escalating oil prices, factors that some economists believe have increased the likelihood of a recession.
The financial sector has dropped 12% from its high, owing to indicators of strain within the private credit market. In Q4 2025, U.S. loan delinquency rates reached their highest point since 2017.
The materials sector is 11% off its high, as rising oil prices and declining metal prices pose a dual threat of increased costs and decelerated revenue growth for manufacturers and miners.
The communications services sector is 9% below its high, primarily due to its significant concentration in advertising stocks, which typically underperform during periods of economic uncertainty.
Cumulatively, these concerns have generated considerable market volatility. The CBOE Volatility Index(VOLATILITYINDICES: ^VIX) — frequently referred to as the stock market’s “fear gauge” — closed at 29.5 in early March. The index had not closed above 29 since President Trump enacted extensive tariffs last April.
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However, VIX readings above 29 have historically correlated with substantial upside movements in the stock market. Here’s what investors ought to know.
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The CBOE Volatility Index (VIX) measures the expected volatility of the S&P 500, with higher readings signifying more substantial price swings. Its value at any given moment is determined by how much investors are willing to pay for S&P 500 options contracts. A VIX of 29 indicates investors anticipate the S&P 500 to fluctuate by 29% in either direction over the coming year.
The VIX closed at 29.5 on March 6, marking the 265th occasion in the past 15 years that the index has finished above 29. This trend suggests considerable forward returns in the stock market. Over the last decade and a half, the S&P 500 has, on average, recorded a 12-month gain of 24% following a VIX reading exceeding 29.
What are the implications for investors? When the VIX closed at 29.5 on March 6, the S&P 500 settled at 6,740. A 24% advance from that level would push the stock market benchmark to 8,358 by early March 2027, implying a 27% upside from its current level of 6,582.
Wall Street projects a similar trajectory for the S&P 500 over the next year. The bottom-up consensus forecast — which represents the value derived from aggregating the median target price for every stock in the index — anticipates the S&P 500 reaching 8,338 by March 2027, according to FactSet Research. This indicates nearly 27% upside from its present level.
However, this bottom-up consensus is predicated on the expectation that S&P 500 companies will collectively report earnings growth of 16.3% in 2026, an acceleration from 13.8% in 2025. Wall Street analysts might lower their forward earnings estimates if the U.S.-Iran conflict keeps oil prices elevated.
Last week, Moody’s chief economist Mark Zandi cautioned that ongoing conflict in the Middle East could even push the U.S. economy into a recession. He warned, “If oil prices remain high for much longer (weeks, not months), a recession would be difficult to prevent.” In such a scenario, history suggests the S&P 500 would experience a sharp decline over the subsequent year.
Here’s the broader perspective: Investors often overreact to negative news, which frequently leads to strong stock market performance after periods of heightened volatility. Nevertheless, past performance offers no guarantee of future results. Rising oil prices could lead to slower corporate earnings growth than Wall Street anticipates, potentially preventing the upside implied by a VIX reading above 29 from materializing.
Regardless, investors should adhere to a time-tested strategy: Buy and hold high-quality stocks irrespective of near-term events.
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Trevor Jennewine maintains no position in any of the mentioned stocks. The Motley Fool holds positions in and recommends FactSet Research Systems and Moody’s. The Motley Fool has a disclosure policy.
