The Stock Market’s “Fear Gauge” Says the S&P 500 Will Make a Big Move in the Next Year (Hint: It’s Good News)

The S&P 500 (^GSPC 1.41%) has now declined in 4 consecutive weeks, leaving the index almost 6% beneath its document excessive. Apart from power shares, it has been difficult a yr for equities throughout the board, though losses have been extra pronounced in sure sectors.

• The data expertise sector is 12% beneath its excessive as a result of traders are involved that synthetic intelligence (AI) spending is unsustainable.
• The shopper discretionary sector is 12% beneath its excessive as a result of considerations about tariffs and rising oil costs, which some economists argue have raised the odds of a recession.
• The monetary sector is 12% beneath its excessive as a result of the personal credit score market is displaying indicators of stress. In This autumn 2025, delinquency charges on US loans reached their highest degree since 2017.
• The supplies sector is 11% beneath its excessive as a result of rising oil costs and falling metallic costs threaten to lift prices and gradual income progress for producers and miners.
• The communications companies sector is 9% beneath its excessive as a result of its heavy focus in promoting shares, which are inclined to carry out poorly in periods of financial uncertainty.

Collectively, these considerations have created a nice deal of volatility in the inventory market. The CBOE Volatility Index (^VIX +9.51%) — also known as the inventory market’s concern gauge — closed at 29.5 in early March. The index has not closed above 29 since President Trump introduced sweeping tariffs final April.

However, VIX readings above 29 have traditionally correlated with substantial upside in the inventory market. Here’s what traders ought to know.

History says the S&P 500 might soar 27% in the subsequent yr

The CBOE Volatility Index (VIX) measures the anticipated volatility of the S&P 500with greater readings implying bigger value swings. Its worth at any given time is dependent upon what number of traders are prepared to pay for S&P 500 options contracts. A VIX of 29 means traders anticipate the S&P 500 to maneuver up or down by 29% over the subsequent yr.

The VIX closed at 29.5 on March 6, marking the 265th time the index closed above 29 over the final 15 years. That hints at substantial ahead returns in the inventory market. In the final 15 years, the S&P 500 has recorded a median 12-month acquire of 24% following a VIX studying above 29.

What does that imply for traders? When the VIX closed at 29.5 on March 6, the S&P 500 closed at 6,740. Advancing 24% from that degree would carry the inventory market benchmark to eight,358 by early March 2027, which suggests 27% upside from its present degree of 6,582.

Wall Street additionally expects the S&P 500 to return about 27% in the subsequent yr

Wall Street expects a comparable transfer in the S&P 500 throughout the subsequent yr. The bottom-up consensus forecast — which means the worth implied by aggregating the median goal value on each inventory in the index — says the S&P 500 will attain 8,338 by March 2027, based on FactSet Research. That almost implies 27% upside from its present degree.

However, that bottom-up consensus relies on expectations that S&P 500 firms will collectively report earnings progress of 16.3% in 2026, an acceleration from 13.8% in 2025. Wall Street analysts might cut back their ahead earnings estimates if the US-Iran warfare retains oil costs elevated.

Last week, Moody’s Chief economist Mark Zandi warned that battle in the Middle East might even tip the US economic system into a recession. “If oil prices remain elevated for much longer (weeks, not months), a recession would be difficult to avoid.” In that situation, history says the S&P 500 would fall sharply over the subsequent yr.

Here’s the massive image: Investors are inclined to overreact to dangerous information, so the inventory market typically performs effectively after durations of elevated volatility. However, previous efficiency just isn’t a assure of future outcomes. Rising oil costs might trigger company earnings to develop extra slowly than Wall Street anticipates, in which case the upside implied by a VIX studying above May 29 didn’t materialize.

Either approach, traders ought to persist with what works greatest: Buy and maintain high-quality stocks it doesn’t matter what occurs in the close to time period.