By Jacob Sonenshine
What began as distant rumblings of volatility has turned into broader market volatility. For investors waiting for better entry points, that may create new opportunities.
After several years of a bull run for the S&P 500, continued economic growth, a Federal Reserve that has yet to raise interest rates to combat inflation, and a boom in artificial intelligence, equity investors have remained relatively calm. Measures of market volatility reflected that complacency.
This year, however, the Cboe S&P 500 Constituent Volatility Index, which measures an average of expected price swings for all individual stocks on the index, is up 37%. It touched more than 46, its highest level in over a year.
That's because many stocks have taken massive hits, as market participants have taken profits in most chip and other data center names of late. Sellers have reduced their risk because they don't know when the chip and manufacturing customers will slow down the growth of their data center investments. Other stocks are soaring, including Casey's General Stores, whose shares jumped 20% Wednesday after the company reported earnings.
But these swings weren't showing up on the S&P 500 as a whole for a while. Just last week, the Cboe volatility index (the "VIX") hovered at roughly 15 for a few days, below its five-year average of roughly 19, according to Dow Jones market data. The reason was that the index was exhibiting mild moves, as many stocks across sectors were rising, offsetting the decliners.
Fast forward a few days and now, the VIX is at 21, up 35% this year. After all those wild swings in individual stocks, the index was bound to become more volatile. Sometimes, lower valuations for one area -- such as chips and data-center stocks -- can prompt the market to reassess valuations in other areas. Right on cue, the software group has begun to tumble after seeing a strong run for over a month.
Elsewhere, the index's industrials, materials, consumer discretionary, and healthcare sectors have all fell Tuesday. In that time, the S&P 500 dropped as much as 1.6%, helping explain the mild volatility uptick.
The broader market's issues are numerous. Traders and investors have longer-term anxieties about the data center story, while oil has remained elevated on the Iran situation. The fact that inflation is a little higher than it would have been without the oil spike has nudged Treasury yields higher this month, which could slow down economic growth.
The point: the S&P 500's volatility could worsen. The VIX has historically had a fairly strong relationship to the individual constituent volatility index. In the past several years, when the constituent index reaches roughly 55, the VIX usually rises to above 25.
"It looks like elevated single-stock risk is bleeding into index volatility as rates move higher," says Apollo's chief economist Torsten Slok.
That puts the 25 level, give or take, in play for the VIX. In the past few years, that is an area the index has approached when investors become increasingly concerned about growth and the economic outlook.
Any move higher in yields would do the trick, especially as the market grapples with uncertainty about the way new Fed chair Kevin Warsh will go about monetary policy.
The silver lining is that there's a limit to how volatile the index can get. "The VIX may have a natural near-term ceiling in the mid-20s unless there is a true growth scare," Slok says.
That means investors should compile a watch list of areas they may want to buy on weakness. The most volatile segments of the market have produced some of the strongest rebounds when sentiment improves.
The most obvious candidate is the VanEck Semiconductor Exchange-Traded Fund, home to data center chip makers seeing explosive growth in their AI offerings. It dropped as much as 11% this month, several times greater than the S&P 500's fall, and has outperformed on days when the market is up. Buy this ETF on weakness.
Relatedly, a bucket of industrial and tech manufacturers that sell products into data centers is another place to look. Vertiv Holdings, Eaton, Caterpillar, Amphenol, Arista Networks, Dell Technologies, and Hewlett Packard Enterprise have seen larger swings than the index.
Another idea that's been in the same boat this week is the State Street SPDR S&P Homebuilders ETF, home to Lowe's, Home Depot, construction company D.R. Horton, and others.
The takeaway: expect more market volatility, and then prepare your list of stocks to buy on dips.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 11, 2026 14:14 ET (18:14 GMT)
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