The Impact of a VIX of 38% for Investors

The VIX has only traded above this level five times since 1995

On August 5th, the S&P 500 (SPX) experienced a surprise drop of 3% in a single day. But what was even more remarkable was this The Cboe Volatility Index, or VIX, also known as the “fear index,” closed at a high of 38%. This situation raises questions about how often such events occur and what their historical significance is, especially when compared to the market correction in 2022.

How rare is VIX at 38%?

Since 1995, the VIX has only traded above 38% five times. For comparison, even during the market challenges of 2022 – when the S&P 500 fell 18% – the VIX never reached this level.

For example, the market experienced a significant crash in 2020 that drove the VIX to elevated levels, but these highs did not last for long periods of time. Understanding this pattern is crucial for investors and analysts.

Duration of high VIX

An important aspect to consider is how long the market will remain at this elevated level of volatility. Focusing on when the VIX reaches 35%, it is clear that the duration of high volatility has generally shortened over the past 15 years, with the exception of 2020. Once the VIX reaches the 35% level, the median value in subsequent periods tends to be around 35% 32%, significantly higher than the long-term average of around 16%.

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