The Market’s Fear Gauge Is at Its Lowest Level This Year. Why Investors Are Feeling Zen.

The Cboe Volatility Index, or VIX, dropped to its lowest level of 2025 on Wednesday. (Michael M. Santiago/Getty Images)

Wall Street’s go-to fear gauge hit its lowest level of the year on Wednesday, signaling that investors are in a calm mood after months of on-off tariff drama.

The Cboe Volatility Index , or VIX, dropped to 14.50 on Wednesday, down from a reading just above 20 at the start of the month. It’s on pace for its lowest close since Dec.24 last year. Any reading of below 20 tends to indicate relatively low uncertainty.

There are plenty of reasons for investors to feel zen.

Created with Highcharts 9.0.1Cboe Volatility Index (VIX)Source: FactSet

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Reciprocal tariffs finally took effect last week, removing one source of volatility, and inflation didn’t flare up by much in July despite worries that the Trump administration’s levies could trigger a surge in consumer goods prices.

It’s also been a solid enough second-quarter earnings season, with the likes of Microsoft and Facebook parent Meta Platforms smashing the Street’s expectations.

Still, don’t expect the tranquility to last. Jobs are now a worry after a soft July nonfarm payrolls report, and any sign of further weakness could be cause for more volatility. And it’s still not clear what the Federal Reserve will do next—traders are now pricing in three straight interest-rate cuts, but if policymakers prove more hawkish then that could set the market up for disappointment.

Investors may be calm right now, but it wouldn’t take much to put them on edge again.

Write to George Glover at george.glover@dowjones.com