Recently, the U.S. stock market has experienced ongoing volatility, with the S&P 500 index declining for four consecutive weeks, retreating nearly 6% from its record high. Except for the energy sector, most industries have faced pressure this year, with some sectors seeing particularly significant declines.
Specifically, the information technology sector has fallen 12% from its previous highs, primarily due to market concerns about the sustainability of artificial intelligence-related spending. The consumer discretionary sector has also dropped 12%, as worries over tariff policies and rising oil prices have led some economists to believe the likelihood of an economic recession is increasing. The financial sector has declined 12%, stemming from signs of strain in the private credit market, with U.S. loan default rates in the fourth quarter of 2025 reaching their highest level since 2017. The materials sector has fallen 11%, as rising oil prices and falling metal prices could push up manufacturing costs and weigh on revenue growth. The communication services sector has dropped 9%; this sector has a high weight in advertising-related stocks, which typically underperform during periods of economic uncertainty.
The combination of multiple factors has exacerbated market volatility. The CBOE Volatility Index (VIX), often referred to as the “fear index,” closed at 29.5 points in early March, marking the first time the index has closed above 29 since the announcement of sweeping tariff policies in April of last year.
Historical data shows that periods when the VIX is above 29 have often indicated significant upside potential for the stock market subsequently. This index measures the expected volatility of the S&P 500, with the value reflecting the price investors are willing to pay for options to hedge against volatility. A VIX reading of 29 implies the market anticipates the S&P 500 will experience approximately 29% of price swings over the coming year. Over the past 15 years, the VIX has closed above 29 on 265 occasions, with the S&P 500 subsequently posting an average gain of 24% over the following 12 months.
On March 6, when the VIX closed at 29.5, the S&P 500 stood at 6,740 points. Based on the 24% gain projection, the benchmark index could rise to 8,358 points by March 2027, implying about 27% upside from its current level of 6,582 points.
Wall Street institutions have offered similar projections. According to a bottom-up consensus forecast compiled by aggregating the median price targets of S&P 500 constituent stocks, the index is expected to reach 8,338 points by March 2027, also implying nearly 27% upside potential. This forecast is based on market expectations of 16.3% earnings growth for constituent companies in 2026, accelerating from the 13.8% growth rate in 2025. However, it is worth noting that if the conflict between the U.S. and Iran continues to drive up oil prices, analysts may lower their earnings forecasts. Mark Zandi, chief economist at Moody’s, recently warned that if the Middle East situation leads to persistently high oil prices, “a recession will be difficult to avoid.”
In summary, investors’ overreaction to negative news often leads to a market correction following periods of high volatility, but past performance does not guarantee future returns. Rising oil prices could weigh on corporate earnings growth, potentially causing it to fall short of expectations and thereby preventing the upside potential implied by the high VIX levels from materializing. For long-term investors, regardless of short-term market fluctuations, holding quality assets remains a proven and effective strategy.
