The market’s “fear gauge” is back in the spotlight. In the wake of President Trump’s latest tariff announcements, stocks have swung wildly and headlines are blaring about a surge in the VIX. Investors watched the S&P 500 tumble and the Dow Jones seesaw by thousands of points in a single session as trade war worries set in (Trump tariffs lead to wild week on Wall Street | Fox Business). Amid this turmoil, the VIX – Wall Street’s go-to volatility index – has spiked to levels not seen in years, reflecting a market on edge.

For those less familiar, the VIX (Cboe Volatility Index) is essentially a real-time gauge of expected volatility in the S&P 500 over the next 30 days (When Fear Runs High, Time to Buy?). In plain terms, it measures how much volatility (or price swing) investors anticipate in the near future by tracking options prices on the S&P 500. When traders are nervous, they rush to buy protective options, and the VIX jumps. That’s why the VIX is often nicknamed the “Fear Index” since a high VIX means investors are fearful, expecting big market moves (usually to the downside), while a low VIX signals complacency or calm. Under normal conditions the VIX hovers around the low teens or twenties, but during market shocks it can skyrocket.

History shows that the VIX tends to spike during periods of extreme uncertainty or crisis. For example, during the 2008 global financial meltdown, the VIX shot up to record highs (around the mid-80s) as panic gripped the stock market (The Volatility Index: Reading Market Sentiment). In early 2020, when the COVID-19 pandemic hit and stocks cratered, the VIX similarly surged above 80, reflecting one of the most fearful moments on record. In more routine scares, say a surprise geopolitical event or a bad recession warning, the VIX might not reach those extremes, but it still jumps far above its usual range as investors brace for the worst.

Now we’re seeing another volatility spike. Thanks to the tariff turmoil, the VIX has hit multi-year highs again (Trump tariffs lead to wild week on Wall Street | Fox Business). It recently climbed into the 50s, more than triple its long-term average level, marking its most elevated readings since the pandemic crash (Investors grapple with tariff-driven economic threat as market swings persist | Reuters). Such a high reading tells us that fear is running rampant on Wall Street. Uncertainty is the keyword since traders simply don’t know how the tariff battle will unfold or how badly it might hurt the economy, so they’re pricing in a bumpy ride ahead. In other words, the VIX is flashing bright red as a fear indicator right now.

Interestingly, times of peak fear have often proven to be opportune moments for steady-handed investors. There’s a famous Wall Street adage: “When the VIX is high, it’s time to buy; when the VIX is low, look out below.” It captures a key contrarian investing insight: extreme fear can mean the worst of the downturn may be behind us. Legendary investor Warren Buffett echoes this philosophy. He famously advised: “Be fearful when others are greedy, and be greedy when others are fearful.” (Warren Buffett's Advice Goes Viral As Stocks Fall on Tariffs | Entrepreneur). In today’s context, that quote resonates more than ever: with the VIX spiking and many traders in panic mode, a contrarian might start to feel a little greedy, seeing potential bargains amid the chaos.

Why consider being optimistic when everyone else is scared? Because history is on the side of the contrarians here. Market data shows that when volatility explodes – say the VIX jumps above 40, indicating extreme fear, stocks have often rebounded strongly in the ensuing years (When Fear Runs High, Time to Buy?). Essentially, a high VIX tends to coincide with market bottoms or at least phases when valuations become much more attractive after a sharp sell-off. By the time the VIX is extremely elevated, a lot of bad news is already “priced in” to stocks. Investors who had the courage to buy during those stomach-churning moments (or at least hold on tight instead of selling) were frequently rewarded once the dust settled and the market recovered. Put simply, when fear peaks, future returns have often been above-average. It’s the market’s way of saying that after a storm, there’s typically a stretch of sunny skies.

All that said, a sky-high VIX is not a crystal ball and doesn’t automatically mark the exact market bottom. Volatility can stay elevated for a while and fear can become overblown or prolonged. Just because the VIX hit, say, 50 today doesn’t mean stocks can’t fall further tomorrow. In 2008, for instance, the fear index spiked and the market remained rocky for months before fully turning the corner. Likewise in early 2020, the VIX peaked around mid-March but the market’s recovery, while swift, still had gut-wrenching twists along the way. The point is, nobody rings a bell when the market has hit absolute bottom since only in hindsight do we know where that low was.

What a high VIX does tell us is that fear is extremely high and a lot of worst-case scenario expectations are already baked into prices. It suggests (but doesn’t promise) that we might be closer to the end of the sell-off than the beginning. For long-term investors, this is encouraging news. If you have a multi-year horizon, buying when the VIX is very high, when others are most fearful, has often been a savvy move. As the team at Hartford Funds observed, staying invested (or even adding to your positions) during volatile times has historically paid off over the long run (When Fear Runs High, Time to Buy?). Once the uncertainty that drove up the VIX starts to clear, markets can stabilize and often rally as confidence creeps back in.

So how should an everyday investor digest the VIX’s surge? First, don’t panic. The spike in the “fear index” is a sign that many investors are already panicking for you. If you’re feeling rattled by the market swings, remember Buffett’s advice and the historical patterns. High volatility is uncomfortable, no doubt, but it’s also a normal part of market cycles. Rather than viewing the current VIX surge as a reason to sell everything, view it as a signal that we’ve entered bargain territory, at least for good-quality stocks that have been dragged down by broad market fear.

Of course, it’s wise to keep some caution. Ensure your portfolio still aligns with your risk tolerance so you can sleep at night. Nobody knows exactly when the market will find its footing again: it could be next week or months from now. But if you wait for all the uncertainties (tariffs or otherwise) to resolve before you jump in, history suggests you might miss a substantial part of the rebound.