The sudden sell off in Japanese equities and a surge in the VIX suggest the current rout is being exaggerated by trend chasers
4 min
The red numbers in your 401(k) today might appear to vindicate warnings about an artificial-intelligence bubble and infirm economy. But don’t tilt your portfolio toward full pessimism just yet.
The S&P 500 was down 3% Monday, with the Nasdaq falling even further. Investors have been selling the year’s best performers, concerned that disappointing second-quarter results from big technology companies such as Alphabet , Tesla and Intel are a sign that the AI frenzy is a fad. Also, consumer discretionary stocks have become the worst-performing sector in the S&P 500, as lacklustre labour-market reports have raised worries that the Federal Reserve made a mistake by waiting until September to cut interest rates.
Overseas, the Stoxx Europe 600 closed almost 5% below where it was a week ago, whereas the Swiss franc, a common haven asset, is up roughly 4%. The most eye-popping moves happened in Asia, though, where the Nikkei 225 plunged 12.4% Monday in the worst trading session since Oct. 20, 1987—the day that followed Wall Street’s infamous Black Monday.
Yet it is precisely the breakneck speed with which Japanese equities tumbled that should give most investors a reason to remain calm.
As a guideline, sudden market selloffs are less dangerous than those that unfold progressively over time. This is because investors who rationally price in bad economic data often do so slowly, as it trickles in. Flash crashes, conversely, are often a sign that some tidbit of bad news made speculative bets go awry, triggering a cascade of trades, many of them automated.
Japan is particularly prone to such reversals because interest rates there are so low that many investors use them to fund higher-yielding investments in other currencies. Whenever markets get jittery, these “carry trades” tend to unravel, pushing up the yen and hitting Japanese stocks, many of which are diversified exporters that do better when global growth accelerates. Amplifying this tendency, Japanese stocks had this year become extremely popular among global investors.
The timing of the rout also points a finger at the Bank of Japan , which last week decided to tighten monetary policy for the first time in 17 years with the explicit goal of boosting the yen. Investors who rushed to cover their bets then triggered the reversal of stretched trades elsewhere, including in the U.S.
One of the most striking features of the S&P 500 for most of this year has been its extremely low volatility. Until July, the Cboe Volatility Index, or VIX, was at 2019 levels, and kept sliding lower even as investors made big changes to their monetary-policy forecasts.
While the VIX is often dubbed Wall Street’s “fear gauge,” the options contracts it is based on often themselves influence volatility. Whenever investors make bets against market swings, as they have recently in the U.S. by buying lots of structured products , the banks that sell those options are forced to take the other side. These hedges then suppress volatility in the stock market.
The flip side is that whenever a panic breaks through this feedback loop, volatility skyrockets. As the stock market opened Monday, the VIX hovered above 50, making it the highest weekly jump since the onset of the pandemic, though it later fell below 40.
This suggests the selloff is disproportionate, especially looking at the historical record: 87% of the time, investors who bought the S&P 500 on days when the VIX closed at 30 or higher ended up making money a year later.
The second-quarter reporting season has brought mostly good news, with 78% of the S&P 500 firms that have reported so far beating analysts’ earnings estimates—compared with a 74% 10-year average. Both AI-related companies and the rest are reporting net income above what was forecast a month ago. Overall, the U.S. economy still looks robust: The unemployment rate has gone up because the labor force has expanded.
Also, looking at S&P 500 returns since 1994 shows that selling based on the previous day’s falls is a bad strategy. Electing to move into cash after large monthly declines fared better, but still less well than sitting tight.
This isn’t to say that concerns about an economic slowdown or high tech valuations aren’t warranted. Investors have reasons to diversify away from the AI trend or swap more cyclically exposed stocks for more “defensive” names. Indeed, selling out of stocks after particularly exuberant days and months has historically tended to be a winning move. But hindsight is a terrible guide to investing your savings.
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Gold miners are emerging as a compelling way to navigate market uncertainty, with analysts pointing to strong cash flows, attractive valuations and rising profit margins. As gold prices stabilize above US$4,000 an ounce, mining stocks could offer investors both downside protection and long-term upside.
3 min
Gold is one of the market’s go-to hedges in rocky times. Don’t forget that gold miners’ stocks are too.
The stock market’s gains in 2026 belie the rocky macroeconomic picture: elevated inflation, heightened geopolitical tensions, and jitters about the artificial-intelligence trade. That backdrop, in theory, should be the time for gold to shine. Instead, the price of the yellow metal has tumbled more than 5% so far, after last year’s blistering 65% rally. In part, the U.S. dollar’s recovery has stymied gold, which benefited from the greenback’s weakness in 2025.
Even with the precious metal’s recent weakness, gold mining stocks could be the best way to profit from this year’s uncertainty.
Gold miners “are a valuable hedge against macro risks that would likely be damaging for equities,” BCA Research’s Noah Weisberger and Rishabh Shah wrote this week.
Concerns about the Federal Reserve’s next moves to tackle inflation, the increasingly crowded AI trade, and steep valuations for tech stocks are just some of the drivers that could help gold’s price get on even footing— and lead to even bigger gains for miner stocks.
These stocks’ prices tend to outpace gold’s moves, because the companies have fixed operational costs. So when gold’s price rallies, their profit margins soar, and vice versa. For instance, the VanEck Gold Miners GDX +7.39% exchange-traded fund has fallen 11% this year as the metal has slumped.
Now, gold’s price just needs to stabilize to help miners’ stocks take off, and that seems to be happening. The precious metal has recently found support above the $4,000 level, and has stuck in a narrow range since the end of June. But its price rose ever so slightly in July, ending a four-month losing streak for the metal. Technical analysis also suggests that gold is due for a comeback.
Barron’s recently wrote that the pullbacks for both gold miners and the metal itself are overdone. Senior technical analyst Doug Busch noted that the VanEck ETF is on the “verge of a breakout” and has the potential to hit $11o in early 2027, up more than 40% from its current price.
Gold miners also have more than their role as a market hedge going for them. Their fundamentals are solid, too, says Chris Mancini, portfolio co-manager of the Gabelli Gold Fund.
“Precious metals miners are generating substantial amounts of free cash flow given profit margins of over $2,000 per ounce, and are returning this cash to shareholders through buybacks and dividends,” he said in an email.
“Buying the miners is a cheap way to get exposure to the price of gold,” he added. His fund owns Newmont NEM +6.71%, a Barron’s stock pick last year, and Agnico Eagle Mines as top holdings, as well as miners Northern Star Resources, Endeavour Mining, and Kinross Gold K+8.59%.
Miners are better businesses than they used to be, the BCA team added.
“Capex is more disciplined, margins are high and rising…and they are largely independent of the AI story,” Weisberger, BCA’s head of equities, and Shah, a senior analyst, wrote.
That last part is key. AI is disrupting the software industry and many other services and information-oriented businesses, and investors have piled into AI stocks. But ChatGPT, Claude, Grok, and other large-language models aren’t going to replace the need to mine for metals.
“Equity portfolios can benefit from exposure to quality that is uncorrelated to AI risk, and gold miners fit the bill,” the BCA team said.
They recommend that investors buy the VanEck Gold Miners ETF, which owns top miners such as Agnico, Barrick Mining ABX +7.24%, and Newmont.
An important bonus for big gold miners’ stocks is that their valuations are attractive after the gold’s pullback, too. The VanEck ETF is now trading at just a little more than nine times next year’s earnings estimates. That’s a big discount to its five-year average price-to-earnings ratio of 14, according to FactSet.
What’s more, the ETF is currently valued at a more than 50% discount to the S&P 500 SPX -0.17%, which is trading for about 19 times earnings estimates for 2027. Mining stocks have typically traded at just a 25% discount to the broader market over the past five years. So there is significant upside for the group if valuations move back toward normal levels.
One factor that complicates mining stocks as a market hedge, of course, is if stocks bounce back, which has been the case so far in August.
But both the market and economic outlooks remain cloudy, and investors remain nervous about the Fed’s next moves and AI stocks. Gold miners should do just fine, even if the anxious mood on Wall Street persists.
