Wall Street’s so-called “fear gauge” has so far fallen to its lowest level in 2026, reflecting the relative market calm in a year marked by geopolitical turmoil, but that calm doesn’t appear to last long.
Strategists are warning that volatility troughs, new stock market highs and unresolved geopolitical risks are winding down just as markets enter a historically rough period from mid-August to mid-October.
The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) uses S&P 500 option prices to measure the expected volatility of the market over the next 30 days. The index, a key indicator of stock market volatility, falls the more calm the market appears.
With the S&P up about 16% since the start of the year and other stock benchmarks nearing record highs, the VIX fell to 14.2 on Friday, its lowest level since the start of 2026.
CBOE Volatility Index.
Jonathan Krinsky, managing director and chief market technician at BTIG, said the drop in VIX indicates a growing sense of complacency from mid-August to mid-October, which is historically a more volatile time for markets, especially during midterm elections.
“We are in a historical period of downside volatility, with markets at all-time highs and VIX at year-to-date lows,” Krinsky said in a note Sunday. “Unfortunately, history tells us we shouldn’t get too comfortable going into the worst time on the calendar in a midterm election year.”
He noted that in every midterm election year since 1990, the even-weighted S&P has fallen at least 7% from its average peak on Aug. 18 to mid-October.
Krinsky said 2026 was proving to be “abnormal” for the stock market, with no day since October last year when it was down 80%. Typically, there are 21 such days on average, he explained, and there has never been a year with fewer than five. Separately, recent dovish inflation-related data such as employment data, CPI, and PPI have shown that long-term Treasury yields are near cycle highs.
S&P500.
“Historically, we think now is a very attractive time to consider de-risking or hedging broader equity exposures as we enter a very difficult period on the calendar,” he added.
“Risk below the surface”
Global quantitative trading firm Susquehanna said the reset in volatility was “significant”, with two-month implied volatility inching back toward pre-Iran war levels of 13.5%, even though cross-asset and geopolitical risks remain active.
Axel Rudolph, chief technical analyst at investment and trading platform IG, said the decline in VIX was coupled with 12 consecutive weeks of equity capital inflows, despite little sign of a resolution to the Middle East issue and continued pressure around the Strait of Hormuz.
Rudolph said in market commentary that the unexpected 0.6% drop in retail sales in July shows that U.S. consumers are starting to feel the strain.
“The market is starting to look a little too comfortable given the risks that still lurk below the surface,” Rudolph said in a commentary, adding that long-term Treasury yields present a “very different picture” than the recent rally in stock prices suggests.
“While a third straight week of gains is great, investors may be underestimating how vulnerable this bull market is to new bad news, with volatility so low and risks still elevated.”
