Understanding What VIX Tells Us
VIX is a short name for the Volatility Index. It tells us how much fear or uncertainty is there in the stock market. When the market is going through sharp moves—up or down—the VIX goes up. When the market is calm and stable, the VIX goes down. In simple words, a high VIX means panic and a low VIX means peace. So when we see a big drop in VIX, it means that the fear is going away and the market is likely becoming stable again.
The Biggest Drops in VIX History
Over the last 30 years, there have been only a few times when the VIX has fallen more than 20% in a single day. These big drops are rare but important. Data shows that such large drops happened in years like 1993, 2007, 2012, 2013, and more recently around 2020 during the COVID crash. These were the times when markets were shaken, and then started to find stability again.
What Happens After VIX Falls Sharply
Interestingly, every time the VIX fell sharply, the market gave very strong returns over the next few years. Whether you look at 1-year, 2-year, or 5-year periods after the VIX dropped, the results were mostly positive. For example, after the COVID fall in 2020 or the Global Financial Crisis in 2008, markets bounced back strongly. So, a big drop in VIX has often worked as a signal that better days are coming.
Why VIX Can Be a Powerful Signal
This trend shows us something important. When the VIX falls sharply, especially by 20% or more, it usually happens after a panic. And once panic ends, markets tend to recover. This makes the VIX a helpful early signal for investors. Instead of looking at the market only with fear, one can watch VIX to find moments when stability is returning.
The Latest VIX Drop and What It Could Mean
On April 9th, the VIX dropped by 35%, one of the largest falls ever. If history is any guide, this could mean that the market may deliver strong returns in the coming 1 to 5 years. While nothing is guaranteed, the data supports this positive trend. It doesn’t mean you jump in blindly, but it does mean you stay alert and avoid panic when others are fearful.
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