When the stock market resembles a roller-coaster ride, many investors get queasy and head for the exits. But history suggests that this might be precisely the wrong move.
Market volatility — those sharp, stomach-churning swings in stock prices — often creates psychological pressure to sell. Yet examining what typically happens after these volatile periods reveals a counter-intuitive truth: some of the market’s strongest gains have followed its most turbulent times.
Understanding market volatility
Volatility is a measure of how dramatically stock prices rise and fall over a specific period. Financial professionals often reference the VIX index when discussing market volatility, commonly called “Wall Street’s fear gauge.” This index measures expected volatility in the S&P 500 stock index, with higher readings indicating greater anticipated price swings and investor anxiety.
The VIX typically hovers between 15 and 20 during calm market conditions, but it can spike dramatically during periods of uncertainty. Readings above 40 signal significant market distress — precisely the kind of environment that makes many investors consider abandoning their investment strategy.
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The surprising pattern after high volatility
Perhaps counter-intuitively, these periods of extreme market stress have historically presented excellent buying opportunities for long-term investors.
When the VIX spiked above 40, indicating significant volatility, the S&P 500 averaged returns of approximately 30% in the following year, according to analysis by Wells Fargo Investment Institute examining market behavior from January 1990 to April 2025.
Even more compelling: the probability of positive stock returns 12 months after such volatility spikes exceeded 90% during these periods. In other words, patience has historically been rewarded handsomely during turbulent markets.
Why volatility creates opportunity
This connection between high volatility and subsequent strong returns isn’t coincidental. Periods of extreme market swings typically coincide with investor panic and significant market drawdown. When fear peaks, stock valuations often become compressed as investors sell indiscriminately.
This creates a scenario where expectations are extraordinarily low, potentially setting the stage for what strategists call “relief rallies.” Once investors realize conditions aren’t quite as dire as feared, money flows back into the market quickly, driving prices higher.
This pattern helps explain why about half of the S&P 500’s 14 selloffs of 10% or more since 1990 ended within just one week of the VIX reaching its highest point, with three selloffs ending the very day of the VIX’s peak. These recoveries often display a “V-shaped” pattern — a sharp downturn followed by an equally rapid rebound.
A recent volatility example
We’ve seen this dynamic play out recently. In early April, market volatility spiked dramatically after the announcement of unexpected tariff increases, sending the VIX to approximately 53, placing it among the top 1% highest readings in the index’s history. The S&P 500 responded with an almost 11% selloff over two days.
Such dramatic market moves naturally trigger emotional responses from investors. However, those familiar with market history might recognize this as potentially setting the stage for future gains rather than as a signal to exit the market.
Maintaining perspective during turbulent times
While historical patterns provide valuable context, they don’t constitute a guarantee. Market conditions evolve, and each period of volatility has its own unique characteristics. The resolution of economic uncertainties, policy decisions, and other factors will ultimately determine how markets respond in any specific instance.
That said, the consistent historical relationship between high volatility and subsequent strong returns offers a compelling case for maintaining a long-term perspective. For investors with adequate time horizons, periods of market stress have frequently presented opportunities rather than reasons to abandon carefully constructed investment strategies.
The lesson for investors
Market volatility is unavoidable. Rather than viewing it as something to fear, long-term investors might be better served by recognizing it as a natural part of the investment landscape — one that has historically created opportunities for those with the patience to withstand temporary discomfort.
While past performance never guarantees future results, the historical data strongly suggests that reacting to volatility by selling stocks often means missing the robust recoveries that frequently follow these turbulent periods. For investors focused on long-term outcomes, staying invested — or even selectively adding to positions during volatility — has typically proven more rewarding than attempting to time market exits and re-entries.
The next time market volatility spikes and uncertainty reigns, remember that this uncomfortable moment might actually be setting the stage for your portfolio’s next significant advance.
Don’t navigate market volatility alone. If you have $100,000 or more in investments, SmartAsset can connect you with up to three vetted financial advisors who can help you build a long-term strategy — and stay the course when the market gets rocky.
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