Volatility got off to a quick start in 2025… then fizzled out.
Following President Trump’s promise to impose tariffs, the S&P 500 fell into a bear market on an intraday basis at the start of the year. That sent volatility skyrocketing.
The CBOE Volatility Index (VIX) tracks volatility in the S&P 500. In early April, it closed at the highest level since the sell-off during the pandemic.
Since then, calm has returned to the market. The S&P 500 went on its second-longest streak of consecutive closes above its 50-day moving average.
But I don’t expect a low volatility environment to stick around forever. And that’s good news with the right strategy.
During the first half of 2025, I showed my subscribers how to capture large gains by jumping on volatility. My options trading advisory, One Ticker Trader, just had its best year ever based on our closed positions last year.
That gets me excited for trading opportunities ahead in 2026.
Conditions are supporting a return in volatility. And this time, I believe it will stick around…
Concentration in the stock market’s biggest companies is running at levels never seen before.
The top 10 holdings in the S&P 500 include names like Nvidia (NVDA), Tesla (TSLA), and Microsoft (MSFT). Most stocks in the top 10 are leveraged to the artificial intelligence (AI) theme.
Those stocks make up 42% of the S&P 500, which is the largest concentration in history.
While the ride higher to heavy concentration can deliver huge gains… it also leaves the indexes exposed to a burst in volatility.
That’s partly because concentration makes indexes more susceptible to company or industry-specific news or events.
Just look at recent headlines around Oracle. After a partner backed out of a data center deal, Oracle and other AI stocks pulled indexes like the S&P 500 and Nasdaq sharply lower.
High levels of concentration also tend to develop in lockstep with valuation bubbles.
As I outlined here, stock market valuations are running near the most stretched levels ever seen. Historically, buying the S&P 500 at these valuation levels has resulted in negative returns on average over the next decade.
We’re already seeing cracks form in the stock market’s leaders… and how that can weigh on the major indexes.
And in 2026, I believe those cracks will usher in a wave of volatility, just like they have in the past.
The price action at the end of 2025 is just a small preview of what we could see emerge in the year ahead.
The S&P 500 struggled to make a fresh high during the fourth quarter as AI stocks like Nvidia traded near their lowest levels in three months.
The S&P even had a 5% pullback during the fourth quarter. But that could be nothing compared to what’s coming.
Just look at the explosion in volatility following high levels of concentration in the past. Concentration in the top 10 stocks was at historically elevated levels at the end of 2021. The S&P peaked on the first day of 2022 and went on to fall as much as 25% over a 10-month stretch.
Before that, concentration ran at elevated levels heading into the late 1990s internet bubble. From the peak in early 2000, the S&P 500 went on to lose 50% of its value during a bear market that lasted for three years.
And while it’s not discussed much, concentration reached high levels in the late 1960s. That gave way to the stagflationary period of the 1970s, when the stock market faced a “lost decade” featuring sharp whipsaws in both directions.
Of course, it’s hard to time exactly when a sustained period of volatility will hit the stock market. But the stage seems set for turbulence in 2026.
When that volatility hits, the conditions are in place to see a prolonged stretch of massive price swings just like history suggests.
And when it does, we’ll capitalize on it with our options strategies, primed and ready to go.
Happy Trading,
Larry Benedict
Editor, Trading With Larry Benedict
Reading Trading With Larry Benedict will allow you to take a look into the mind of one of the market’s greatest traders. You’ll be able to recognize and take advantage of trends in the market in no time.
