The S&P 500 is the most diversified U.S. stock market index. The most recent record high of 7,620.90 was on June 2, and while the index has not reached a higher high in over a month, it remains not far below the June peak at over 7,450.
Low liquidity during the summer vacation period could lead to additional gains, but the market is about to enter a period of heightened volatility, and a violent correction could be on the horizon.
Fall can be an ugly season for stocks
History shows that some of the worst stock market declines occurred in October. The infamous 1929 stock market crash reached a crescendo on Black Monday and Tuesday, on October 28 and 29.
On Monday, October 19, 1987, the Dow Jones Industrial Average fell nearly 22%. During the Dot-com bubble, the NASDAQ reached a low that was 76.81% below its March 10, 2021, high on October 4, 2002.
The fall season has historically been the time of the year when the stock market is most susceptible to corrections, and one factor in 2026 can increase the chances of a downdraft.
The U.S. midterm elections could be a problem for stocks
In November 2026, U.S. voters will decide if the Republicans keep control of the Congress and Senate. The election will determine the future of U.S. foreign and domestic policy under the Trump administration. While the opposition party historically prevails in midterm elections, the rise of the Socialist Democrats could tighten the race and, if the Democrats prevail, shift the U.S. from a capitalist to a more socialist country. Therefore, the 2026 U.S. midterm elections are the most consequential in decades.
The stock market does not respond well to uncertainty. Moreover, the threat of higher corporate taxes, increased regulations, and even the potential of nationalization of some strategic businesses and means of production adds to the uncertainty. As October is a month where the stock market has traditionally experienced corrections and turbulence, October 2026 will come at a time when uncertainty reaches a crescendo.
The geopolitical and economic landscapes remain highly volatile
The war between Russia and Ukraine has escalated. The MOU between the U.S. and Iran is not worth the paper it is written on, as attacks have increased, Iran has threatened to block all traffic through the Strait of Hormuz, and the diplomatic process has broken down.
The bottom line is that the geopolitical landscape remains turbulent, which increases the odds of sudden stock market volatility.
Stubbornly high inflation has kept U.S. interest rates elevated. High interest rates tend to weigh on stock prices by increasing corporate financing costs. High interest rates also draw capital from equities to fixed-income assets.
The U.S. debt is approaching $40 trillion, weighing on the full faith and credit of U.S. government debt securities and on the value of the U.S. currency. With the Fed Funds Rate stuck at 3.625%, financing the U.S. debt costs over $1.4 trillion per year, which increases the debt even if spending and receipts are balanced. Increasing military and other spending has caused spending to exceed receipts.
In the economic landscape, debt, inflation, and fiat currency devaluation could trigger a downdraft in the stock market.
Meanwhile, the stock market trend remains bullish. Corporate profits are robust, and trade policies and tariffs have bolstered economic activity through the Made-in-America policies. While many factors point to a decline in the stock market over the coming months, there is no guarantee that a correction is on the horizon. However, the bullish and bearish factors create uncertainty in July 2026.
Critical long-term levels to watch in the S&P 500
The S&P 500 is the most diversified U.S. stock market index.
The ten-year chart shows that the last two corrections were in March 2020, when the global pandemic gripped markets, and in April 2025, when the Trump administration rolled out its “Liberation Day” tariffs. In March 2026, stocks declined as the hostilities between the U.S. and Iran peaked. However, each of these corrections was a buying opportunity.
The quarterly chart shows that every correction has been a buying opportunity, with the last prolonged corrections occurring from Q1 2000 through Q4 2002 during the Dot-com bubble and from Q4 2007 through Q1 2009 during the global financial crisis. While these events were buying opportunities, the corrections took significant time to play out before the S&P 500 reached new highs.
The critical technical resistance is at the recent June 2026 high of 7,620.90, with technical support at the March 2026 low of 6,316.91 and the April 2025 low of 4,835.04. Time will tell if the economic and geopolitical landscapes and U.S. midterm elections cause the S&P 500 to threaten these levels.
The VIX could be far too low
The VIX is a sentiment indicator that reflects the implied volatility of put and call options on the S&P 500. Implied volatility is the primary determinant of option prices. Options are a form of price insurance, and demand for insurance tends to rise during stock market corrections. During bull markets, option prices tend to decline as sellers emerge to enhance income on risk positions. Therefore, the VIX index rises when the S&P 500 declines, and it falls when the S&P 500 rises.
I concluded a May 28, 2026, Barchart article on why the VIX was so low with the following:
The VIX is low due to record highs in the S&P 500 and other leading stock market indices. While it is possible that the VIX will return to the 2026 low of 14.43, it is only 2.57 above that level at 17. A move to the 2026 high of 35.30 would require an 18.3 increase in the volatility index. Therefore, the risk-reward ratio at 17 is better than 1:7 on long VIX positions.
The VIX was at 16.97 on May 27, 2026.
The ten-year monthly chart of the VIX shows that, at 18.57 on July 17, it was slightly higher than in late May, as the S&P 500 rose to a new high in June and remains within striking distance of that peak.
The many factors facing the U.S. stock market over the coming months, along with seasonality that favors fall corrections, could mean the VIX remains far too low on July 17, 2026. The low VIX tells us that price insurance is inexpensive in the current environment, which could be an opportunity to protect long-term investments in the U.S. stock market.
A stock market correction over the coming months is not a guarantee, but the risks are certainly rising. There are plenty of reasons for caution when approaching the stock market in July 2026.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
