Why frequent fear didn’t derail stocks—and what that says about modern markets.
KEY TAKEAWAYS
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Investor pain fades faster than we remember, especially in markets
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The VIX spiked repeatedly in 2025 but failed to stay elevated
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Fear arrived loudly but left quickly, allowing buyers to re-emerge
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Markets absorbed shocks without freezing or deleveraging structurally
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Returns rewarded those who stayed engaged despite discomfort
MY HOT TAKES
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Investors are adapting to a permanent state of risk
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Volatility is being processed faster, not avoided
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Modern markets treat shocks as tradable events, not exit signals
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There is a growing tension between resilience and complacency
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Risk-reward remains intact, but vigilance STILL matters
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You can quote me: “Resilience and complacency look the same right up until they don’t.”
Still standing. I am going to open a second straight day with a disclaimer: this is not a yearend recap–no–that is bubbling deep in my craw. Worry not though, I will get it out over the next week or so. I had actually not intended to post this morning, but I wanted to drop some quick thoughts on you as we turn the page on 2025. Bear with me.
It is well known that we humans have a very short memory for pain. I am not a psychologist, but I am sure that there are plenty of well-cited theories on this. I am blessed with two children, both of whose births I witnessed. Based on my recollection of those events, it is clear that humans are able to somehow forget physical pain, otherwise I am pretty sure that the species would have gone extinct a long time ago. Now, I know that it is unfair to pretend that I know what that feels like firsthand, so I am going to jump into something I do have a bit of firsthand experience in–investor pain. Ya, you could say that I have been at this Wall Street thing for long enough to opine on the matter.
When we speak of market pain, one of the first indicators that comes to mind is the VIX Index. The VIX, formally known as the CBOE Volatility Index, is a real-time measure of the market’s expectation for volatility in the S&P 500 over the next 30 days. It is derived from prices of near-term S&P 500 index options, translating option premiums into an implied level of future price swings. Because it reflects expectations rather than realized moves, the VIX often rises when investors are actively buying downside protection. Higher readings indicate greater demand for insurance and wider expected trading ranges, while lower readings suggest calmer conditions. Importantly, the VIX is not a measure of market direction, only the anticipated magnitude of price movement. Many refer to it as the “Fear Gauge,” or the “Anxiety Index.”
Would you say that this past year was one that had some painful market events? Go on, think for a moment. Aha, there it is. You remember Q1, There was the Deepseek invasion, Liberation Day, the Iran bunker buster mini-series, and you can’t forget what I call the April Air Pocket. Oh…now you remember–it hurt, didn’t it.
I wondered, as I sat on the ferry this morning–painfully cold–if this past year was filled with more pain than 2024 or 2023. Those years have been carefully wrapped and stored for future generations to marvel at. I applied myself to generating a nice R-language plot to get a visual sense. Have a look.
This chart lines up VIX trading day price action from this past year (blue line), last year (green line), and 2023 (red line). Looking at 2023, you can see that the index was quite spiky in the second half of the year. We also note that the entirety of this year has been marred with countless fear spikes, one of which may even be one for the record books, were it not for the pandemic (VIX briefly hit around 82) and the Global Financial Crisis. Those two references alone, give you an idea that this past year had some pain.
What strikes me most as I stare at this chart is not the level of fear, but its rhythm. The VIX did not camp out at extremes this year; it surged, retreated, and then did it all over again. Fear arrived quickly and made plenty of noise, but it rarely overstayed its welcome. In that pattern, you can start to see something about how investors behaved in 2025. Markets reacted, sometimes sharply, but they did not lock up, and just as importantly, buyers continued to re-emerge after each jolt.
This is where the short memory for pain comes back into the story. After a very spiky second half of 2024, one might have reasonably expected investors to tread more carefully this year. Instead, capital leaned back in. Stocks were bought after Deepseek. Stocks were bought after Liberation Day. Stocks were bought after Middle East escalation fears. Stocks were even bought in the depths of that April Air Pocket, when it felt for a few days like gravity had been turned back on. The VIX jumped, nerves rattled, and yet participation never really left the building.
That is not nothing. It suggests that investors are becoming more accustomed to living with risk as a permanent backdrop rather than an occasional visitor. Systematic risk, policy risk, geopolitical risk, all seem to be treated as part of the operating environment rather than as reasons to abandon it. You can argue that this is learned behavior, conditioned by a decade-plus where shocks were met with recovery more often than collapse. It was a dip buying bonanza! You can also argue that this is how markets evolve: pain does not disappear, it just gets processed faster.
Of course, there is an uncomfortable question hiding just beneath the surface. Are investors becoming resilient, or are they becoming numb? There is a fine line between adaptation and complacency, and it is not always visible in real time. When fear spikes no longer force sustained deleveraging, when volatility becomes something to trade rather than something to fear, risk can quietly build. The VIX does not warn you about that directly. It merely tells you how much insurance people are buying today, not whether they should be buying more.
Still, it is hard to ignore the other side of the ledger. Had investors not come back again and again over the past few years, they would have missed out on some genuinely strong stock returns. The market has rewarded those willing to endure discomfort without confusing it for disaster. That has been true not just in 2025, but in 2024 and 2023 as well. The VIX spiked, headlines screamed, and yet the long arc of equity returns continued to bend upward for those who stayed engaged.
That is the unwritten bargain markets offer. You do not get returns without accepting volatility, and you do not get volatility without moments of pain. Remember what I always say: “volatility works both ways–it’s your best friend on the upside and your worst enemy on the downside.” The trick, as always, is understanding whether the pain you are feeling is signaling real damage or simply the cost of admission. This year leaned heavily toward the latter. The fear was frequent, the wounds were shallow, and the healing was fast.
As we turn the page on 2025, it is worth tipping the hat to that simple risk–reward tradeoff. Markets will continue to test us. Volatility will continue to show up uninvited. The open question is not whether investors will feel pain again, but how they will respond when they do. Will we keep coming back thoughtfully, or will familiarity breed complacency and carelessness? That answer will matter far more than the level of the VIX on any given day.
For now, though, we are still standing. And that, in markets as in life, counts for quite a lot. Wishing you all a happy, healthy, and prosperous New Year! I am truly, truly grateful for your support!
YESTERDAY’S MARKETS
Stocks declined moderately as traders floated about, rudderless, without the wind of momentum to fill their sails. Christmas is past, but Santa Rallies tend to be more productive in the first five days of the year–it may still come. Silver made a run at its all-time high, but fell short.
NEXT UP
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Initial Jobless Claims (December 27th) is expected to come in at 218k, slightly above last week’s 214k claims.
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Markets are closed tomorrow for New Year’s day and bond markets close early today. I will give my pen a rest on Friday.
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Next week, we will hit the ground running bigtime with PMIs, Personal Income, Personal Spending, PCE Price Index, and JOLTS Job Openings. Check back in on Monday and get your calendars so you can attack 2026 starting on the right foot… or left…whichever is your strongest.
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