What elevated volatility has historically meant for long-term stock returns

Key takeaways:

• Elevated volatility reinforces the importance of discipline—staying grounded in fundamentals, diversified in portfolios, and aligned with client risk tolerance. 
• History suggests that trying to time volatility, trade headlines, or react emotionally during market stress often works against capturing long-term equity returns.

03/25/2026 – Markets are rarely unsettled by a single risk. Instead, advisors face a growing mix of pressures—from emerging cracks in private credit and rapid AI disruption to stubborn inflation and a geopolitical backdrop that continues to cloud economic forecasts.

As these risks accumulate, they’ve begun to weigh on market psychology. After entering 2026 with broadly positive sentiment, investors have grown more cautious as multiple indicators point to a reset in the market’s mood. The CNN Fear & Greed Index has moved into extreme fear territory; the AAII Sentiment Poll has shown more bears than bulls for four consecutive weeks; the NAAIM Exposure Index has fallen to its lowest level since last April; and the Bank of America Global Fund Manager Survey has dropped to a six-month low. Volatility has followed suit, with the VIX Index spending much of March above 20.

For now, market bears are driving the sentiment narrative. The swift pivot from optimism to defensiveness has caught many investors off guard and searching for perspective. As uncertainty rises and risk appetite fades, history offers a useful reference point. During past periods of elevated volatility, moments of peak fear—as measured by the VIX—have often preceded compelling forward returns for patient, diversified investors.

History paints a clear picture when comparing S&P 500® Index 12-month forward returns across different levels of market volatility. When the VIX has surged into the 40–50 range—periods that often feel, in real time, as though something has fundamentally broken—subsequent 12-month returns have averaged gains north of 30%. That stands in sharp contrast to the roughly 10% average 12-month return historically associated with a VIX below 20.

Investors who tried to time volatility peaks, trade headlines, or react emotionally during periods of extreme market stress rarely captured these outcomes. Those who did were investors who stayed disciplined—maintaining diversified portfolios to manage turbulence and remaining invested through the cycle to fully participate in the recovery.

While historical data can help frame expectations, it offers no guarantees. Market history provides context—not destiny. In periods of uncertainty, investors are best served by staying anchored to long-term fundamentals, maintaining disciplined portfolio allocations, and making decisions aligned with their risk tolerance. The market backdrop may be shifting, but the principles that underpin investment resilience remain unchanged.