The Opportunity in Volatility
Periods of elevated fear have historically presented attractive buying opportunities. With conflict in the Middle East now pushing volatility higher, could today present a potential opportunity for long-term investors?
In times of heightened market volatility, it is tempting to reduce equity exposure to limit downside risk. However, we believe that periods of elevated uncertainty often present attractive buying opportunities. In our view, one of the best gauges of investor sentiment is the CBOE Volatility Index (VIX), which measures the implied volatility of the S&P 500 Index. The higher the VIX, the greater the volatility investors anticipate and the higher the premium they are willing to pay for options contracts. With geopolitical conflict in the Middle East stoking investor uncertainty and pushing the VIX higher, a look back over the past year may offer a valuable perspective.
- On April 2, 2025, U.S. President Trump declared “Liberation Day,” announcing sweeping tariffs that sent the S&P 500 Index tumbling more than 10% in two sessions and drove the VIX Index above 50. When we wrote
The Upside of Fear on April 10, 2025, we noted that “many times when fear is the highest is the point you may want to consider investing in equities.” Nearly one year later, the S&P 500 Index returned approximately 25%.1 Based on data going back to 1990, the S&P 500 delivered a positive return 97% of the time in the one-year period following a VIX reading above 40, with an average return of 36%.2
- Recently, escalating conflict in the Middle East has heightened investor concerns and may lead to increased market volatility. However, equity markets have historically absorbed geopolitical shocks relatively quickly—going back to the First Gulf War in 1990, the median S&P 500 return following the outset of geopolitical conflicts has been 7% over six months and 10% over twelve months.3
- At Alger, we remain focused on innovative growth companies positioned to gain market share within the economy, as we have for over six decades. While it remains unclear how long the Middle East conflict could last, periods of extreme market volatility, just as we experienced around “Liberation Day,” we believe they have historically presented attractive opportunities to own high-quality businesses at lower valuations.
1FactSet, Standard & Poor’s. The S&P 500 total return of 20% was calculated from 4/10/25 through 4/1/26.
2FactSet, Standard & Poor’s, and CBOE VIX. Data from 2/28/90 through 4/1/26.
3The S&P 500 median price return calculated 13 geopolitical conflicts starting from the First Gulf War in August 1990 through the Israel-Hamas War in October 2023.
The views expressed are the views of Fred Alger Management, LLC (“FAM”) and its affiliates as of April 2026. These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by FAM. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.
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S&P 500® Index: An index of large company stocks considered to be representative of the U.S. stock market. Index performance does not reflect deductions for fees, expenses, or taxes. The S&P indexes are a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Fred Alger Management, LLC and its affiliates. Copyright 2026 S&P Dow Jones Indices LLC, a subsidiary of S&P Global Inc. and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. S&P® is a registered trademark of Standard & Poor’s Financial Services LLC and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. Neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors make any representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and neither S&P Dow Jones Indices LLC, Dow Jones Trademark Holdings LLC, their affiliates nor their third party licensors shall have any liability for any errors, omissions, or interruptions of any index or the data included therein. Investors cannot invest directly in any index. The performance data quoted represents past performance, which is not an indication or a guarantee of future results. The VIX Index is a calculation designed to produce a measure of constant, 30-day expected volatility of the U.S. stock market, derived from real-time, mid-quote prices of S&P 500® Index (SPXSM) call and put options.
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