This is what typically happens to stocks after periods of high volatility

Periods of extreme volatility in the stock market may feel painful for investors — but such periods are generally followed by strong stock returns, if history is a guide, according to market analysts.

In that sense, many investors would be wise not to sell stocks — and should perhaps even buy more, analysts said.

The VIX index, also known at the Wall Street fear gauge, measures the market’s estimate of expected volatility in the S&P 500 stock index.

When the VIX has spiked to a level above 40 — indicating “significant” volatility — the S&P 500 has been up 30% a year later, on average, according to a Wells Fargo Investment Institute analysis of the market from January 1990 to April 16, 2025.

The odds of stock returns being positive 12 months later were also above 90% during these periods, the analysis found.

In other words, volatility creates a “potential opportunity,” Edward Lee, a Wells Fargo investment strategy analyst, wrote in the analysis on Monday.

“Concern is normal, but history has taught us that periods of higher volatility have historically led to higher returns,” Lee wrote.

So, why is there a greater probability of positive and higher stock returns relative to periods of lower volatility?

Volatility “tends to coincide with times of high drawdowns and investor panic, both of which lead to higher probabilities of investing success of the next 12 months,” Lee wrote in an e-mail.

Stock volatility spiked in early April after President Donald Trump announced unexpectedly high country-specific tariffs, and the S&P 500 sold off almost 11% in two days.

The VIX reached about 53, among the top 1% closes for that index in history, Callie Cox, chief market strategist at Ritholtz Wealth Management, wrote last week.

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But low expectations often lead to “relief rallies,” when people pile back into stocks because the initial news isn’t quite as bad as they thought, Cox wrote.

For example, since 1990, about half of the S&P 500’s 14 selloffs of 10% or more ended within a week of the VIX’s highest close, and three ended on the day of its highest close, Cox wrote.

Such selloffs are usually “V-shaped,” meaning there’s a sharp downturn and then a quick rebound, she said in an interview with CNBC.

However, things could be different this time around, she said.

“We’re [still] trying to figure out where the new center of gravity is” with trade policy, Cox said.

“The unexpected news part of the sell-off is probably past us, and if you are a long-term investor, now is probably the time to start buying,” Cox said. “But you can’t expect this to be the bottom of the sell-off. And history isn’t always gospel.”