Fear is unwinding as fast as it built.
A drop of that magnitude over a three-week window is rare.
History suggests what follows tends to be positive and durable for equity markets.
A Rare Signal: Only Seven Prior Episodes Since 1970
A TradingView event study analyzing every instance of a three-week VIX rate of change dropping at or below negative 40% since 1970 identified just seven prior episodes.
The current reading of negative 43.74 joins that list as the eighth.
How The S&P 500 Reacted After A VIX Collapse
The 12-month win rate stood at 85.71% — six of seven completed episodes produced positive returns a year later.
The median 12-month return of 16.51% exceeded the average, meaning the distribution skews toward strong outcomes rather than being lifted by a single outlier.
December 2021 is the exception and the warning.
The VIX had spiked on the emergence of the Omicron variant of the Covid virus before collapsing as the variant proved less severe than feared. But the collapse in fear came precisely as the Federal Reserve was acknowledging that inflation was not transitory and beginning to signal an aggressive tightening cycle.
The S&P 500 fell 3.81% over three months, 22.26% over six months and 16.43% over the following year as rate hikes compressed valuations across growth assets. The maximum drawdown of 24.8% was the worst in the sample by a wide margin.
Bottom line, the fear gauge has crashed on the ceasefire and Hormuz reopening.
The eighth outcome on what the S&P 500 does next depends on what happens in Islamabad on Sunday.
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