VIX Falls to Yearly Low, S&P 500 Sees 12 Weeks of Net Inflows, but Institutions Warn of Increased Fall Selling Risks This Autumn

On August 17, the Chicago Board Options Exchange Volatility Index (VIX) significantly dropped to 14.2, marking its lowest level since 2026. Against the backdrop of the "fear index" hitting a low, the S&P 500 index has surged approximately 16% year-to-date, with stock funds recording net inflows for 12 consecutive weeks, propelling U.S. stocks to rise for three weeks straight and repeatedly set historical highs.

Chief Market Technician Jonathan Krinsky pointed out that since October of last year, the market has not experienced an extreme single-day sell-off where the volume of declining stocks accounted for as much as 80%. The historical average is 21 occurrences per year, with no year recording fewer than 5. He described the current volatility reset as a "substantial" decline, but also noted that the two-month implied volatility has slightly rebounded to 13.5%, nearing levels seen before the outbreak of conflict in Iran.

Chief Technical Analyst Axel Rudolph emphasized that despite the lack of signs of easing in the Middle East situation and ongoing tensions in the Strait of Hormuz, overall volatility continues to decline. Additionally, the unexpected 0.6% drop in retail sales in July indicates that consumers are feeling financial pressure. Wall Street institutions generally view the period from mid-August to mid-October as a historically turbulent time for the markets. Statistical models show that in every midterm election year since 1990, the equal-weighted S&P 500 index has faced at least a 7% pullback from its average peak on August 18 to mid-October.

Krinsky stated, "We are in a historically vulnerable window for downward volatility, and the starting point for entering this period is the historical highs and the VIX's yearly low." He advised investors to reduce risk exposure or hedge broad stock positions, saying, "Historical experience tells us not to be overly complacent as we enter the worst period in the midterm election year calendar." Rudolph also warned that in a situation of extremely low volatility with ongoing risk accumulation, investors may severely underestimate the fragility of rebounds when faced with new negative news shocks. The reality of long-term U.S. Treasury yields hovering at cyclical highs contrasts sharply with the optimistic expectations suggested by the stock market rebound.

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