Investor uncertainty

This driver is highly volatile. Investor uncertainty rises during recessions since investors become risk-averse and fear the effects of an economic downturn. Even if the downturn is expected and predictable, the fear index usually increases. Likewise, investor uncertainty may also be high during times of strong growth since investors are unsure of how long growth will last. Historically, uncertainty has only fallen during times of steady growth or immediately following recessions.

The Vix spiked in 2020, increasing 89.2% over the year. Trading activity was spurred by an initial selloff period at the outset of the COVID-19 pandemic, primarily in March and April of 2020. Trading activity and investor uncertainty remained high for the majority of 2020 and into 2021, even after vaccination mandates took effect. While the Vix returned to near-historical norms in the latter half of 2021, investor uncertainty remained slightly elevated. Shifts in monetary policy by the Federal Reserve to temper rapidly rising inflation has increased investor uncertainty. Continued aggressive rate hikes of the federal funds rate in 2022 instituted another selloff as investors try to capitalize on profits. This led to severe decreases in major indices. Additional fear for investors continues to stem from the Russian invasion of Ukraine. Some investors have looked to the U.S. market as a safe haven, as they seek safe global investments. However, rapid inflation and the continued conflict in Ukraine continues to have global impacts with no set date to end. During 2023, investor confidence was lowered by anticipation that the Fed will halt interest rates hikes moving forward which led to many investors being optimistic that a severe economic downturn could be avoided.

In 2024, investor uncertainty decreased because of pauses in interest rate hikes and eventual rate cuts. However, this trend has reversed in 2025, with the Vix projected to increase by 36.5%. This is because of concerns over the implementation of tariffs by the United States under a new administration.