Keep an Eye on Wall Street's Outperforming 'Fear Gauge'

• A high VIX near market highs suggests significant hedging activity and skepticism rather than euphoria, indicating investors are not fully invested and have buying power on the sidelines
• Historical analysis shows stronger returns at all timeframes when VIX was above 20 near market highs, driven by larger upside moves rather than frequency of positive returns
• Short-term outlook (one month) shows outperformance with 0.93% average return and 74% positive rate, but three-month to one-year returns turn bearish if VIX quickly retreats to lower levels

Market Summary: Elevated VIX Near Market Highs Signals Bullish Potential

Key Market Conditions:

The S&P 500 Index (SPX) is trading within 2% of its all-time high while the Cboe Volatility Index (VIX) has risen to around 20—an unusually elevated level for a market near record territory. This divergence occurred as of Tuesday, February 19, 2026, marking the first such instance since October 2025.

Historical Performance Analysis:

Schaeffer's Research analyzed historical data revealing strong bullish implications when these conditions coincide:

• Three-month returns: SPX averaged gains of 3.71% when within 2% of highs with VIX above 20, versus only 1.47% when VIX was below 20
• Short-term outlook: One-month returns averaged 0.93% with 74% positive outcomes, outperforming typical returns of 0.79% with 64% positive results
• The percentage of positive returns remained similar in both scenarios, but upside magnitude was significantly larger with elevated VIX

Market Implications:

The elevated VIX suggests significant hedging activity and investor skepticism rather than euphoria, indicating:

• Investors are adequately protected against downside risk
• Substantial buying power remains on the sidelines
• Less panic selling during pullbacks is likely

Important Caveat:

Long-term results (three months to one year) showed bearish performance if VIX readings were isolated incidents. Sustained VIX elevation is critical—if the VIX quickly retreats to lower levels, it reduces the probability of continued market rallies. The trajectory of the VIX will be a key indicator for sustained market strength.