This Wednesday, I once again had the pleasure to co-host BNN Bloomberg's The Street with Roger Petersen. We covered a lot of ground — a market rally that's finally broadening out beyond the usual suspects, the still-murky question of how (and when) companies actually monetize their AI spending, and oil’s return towards $100/barrel. But the segment we focused on had to do with what retail investors are asking us these days: how have equity markets posted such gains this year with all this volatility, whether from geopolitical events or from Trump policy trade winds that make Poseidon’s forces in The Odyssey look tame? Sorry, but Pam and I somehow found time this week to see the movie.

The volatility question has been around for a while, and the explanation to investors used to sound something like this. Headlines and individual stock moves present the appearance of a market that is going through massive swings, even though actual measurements of market volatility state the opposite. In other words, the feeling of volatility was subjective based on how the investor was viewing the market. It wasn’t being created by actual gyrations in the market. That explanation was fine back then, but things have changed. Today, actual volatility experienced by the retail investor can be high even though the volatility of the broad market is still quite low.

Two Gauges, One Market — and a Third for Good Measure

The CBOE Volatility Index (VIX) is the index most people mean when they say, "market volatility." It's built off S&P 500 options and measures how much movement traders expect from the broad U.S. market over the next 30 days. Right now, it's sitting around 18 — comfortably near its long-run average (as seen in the chart below), and nowhere close to flashing a warning light, even with an Iran-linked oil scare, tariff headlines, and a chip-stock selloff all competing for attention this month.

The VXN is its cousin — same math, same options-implied methodology, but built off the Nasdaq-100 instead. And right now, it's sitting closer to 27 to 29. That's a spread of roughly 11 to 12 points between the two gauges, as you can see in the chart below. I noted on BNN that the ratio between VXN and VIX is now at its highest in about 23 years. To make sure this isn't a two-index coincidence, I pulled a third data point: the RVX, which measures the same kind of implied volatility for the small-cap Russell 2000. It's sitting around 20 — modestly above the VIX, but still well below the VXN. That's an important tell. If "the market" were broadly nervous, we'd expect small-caps — which are more economically sensitive and historically more volatile than mega-cap tech, not less — to be showing the same elevated readings as the Nasdaq-100. They're not. The kind of index-level anxiety we're discussing is very much a U.S. mega-cap tech phenomenon, not a broad-market or cross-border one.

Put plainly: the broad market's fear gauge, and the small-cap market's fear gauge, are both telling us to relax. It's specifically the tech-heavy gauge that is saying something else. And depending on which one you've been listening to — which section of the orchestra is closest to your ear — you'll walk away with a completely different read on "how volatile is the market right now."

Why the Same Market Can Feel Like Two Different Markets

The mechanical reason for the VXN/VIX gap is concentration. The Nasdaq-100 has become extraordinarily top-heavy. As of the most recent holdings data, the ten largest names in the index account for roughly 46% of its total weight. Zoom out to the S&P 500 and the picture rhymes: the so-called "Magnificent Seven" — Nvidia, Microsoft, Apple, Amazon, Alphabet, Meta, and Tesla — now make up somewhere around 32 to 33% of the entire 500-stock index, despite being, well, seven companies out of five hundred. When seven or ten stocks carry that much weight, the index's volatility becomes, in effect, a referendum on the mood swings of a handful of AI-linked earnings reports, export-control headlines and capex guidance calls. That's a fundamentally different risk profile than a broad, 500-company, multi-sector index where no single name can move the needle much on its own. The VIX reflects the latter. The VXN increasingly reflects the former. Same market, two very different instruments measuring it.

Here's the part I think gets missed: this concentration doesn't require anyone to have made an aggressive, deliberate bet on tech. A lot of it happens by default. If your TFSA or RRSP holds a plain S&P 500 index fund, roughly a third of your "diversified" equity exposure is already riding on seven stocks. Add a Nasdaq-100 ETF, a couple of individual mega-cap names you picked up because they felt "safe" and "blue chip," and perhaps a technology sector fund, and you can end up meaningfully overweight in the most concentrated, most AI-sensitive corner of the market without ever making an explicit decision to do so. That's the "inadvertent" half of my thesis. The "by design" half is simpler: a lot of retail money has chased what's worked, and what's worked since the AI buildout began has overwhelmingly been these same names.

The Feedback Loop Nobody Voted For

There's a mechanical piece of this story that rarely gets discussed at the dinner table, and it's worth pulling apart because it explains why concentration tends to get worse before it gets better. Every dollar that goes into a plain-vanilla S&P 500 or Nasdaq-100 index fund gets allocated by market-cap weight, automatically, with no judgment about valuation attached. A new retirement contribution this month sends roughly a third of that S&P 500 allocation straight into the same seven names, whether or not those names are attractively priced at that moment. That's not a criticism of indexing — low-cost, broad diversification remains one of the better tools we have. But when a handful of companies get large enough, indexing itself becomes a concentration engine rather than a diversification tool, because size begets more inflow, which begets more size. It's a feedback loop with no natural brake, and it's a structural reason this kind of top-heaviness can persist — and even build — well past the point most of us would call it uncomfortable.

There's a second mechanical wrinkle worth mentioning: the retail options market. Single-stock and short-dated options activity has increasingly clustered around the same handful of mega-cap names, and that activity itself can amplify realized volatility in those specific stocks around earnings and macro catalysts, as dealers hedging large options positions can accelerate moves in either direction. None of that shows up in the VIX, which is derived from broad-index options with a very different flow profile. It shows up disproportionately in the VXN, and in the day-to-day experience of anyone holding a concentrated basket of those names. So, part of what clients are feeling isn't just "AI headlines are scary" — it's a market-structure effect that's largely invisible unless you're looking for it.

Everything above argues that today's volatility gap is a concentration story, not a broad-market story — and I stand behind that. But I'd be doing you a disservice if I let that morph into "the VIX will always be right and the calm will hold." There's a live risk on the board right now that could, if it develops, push the VIX itself higher, and it deserves its own paragraph rather than a footnote. The Iran situation is not resolved. A ceasefire held through the spring, a memorandum of understanding in June aimed to formally end hostilities — and then this month the conflict reignited after Iranian forces struck commercial vessels that bypassed an approved shipping route. Brent crude, which had settled back down into the mid-$80s after the earlier de-escalation, recently moved back above $100.

Here's why that matters beyond the headline: a genuinely prolonged conflict runs through a different transmission mechanism than the concentration story above. Higher, sustained oil prices feed into inflation, inflation feeds into consumer spending and corporate margins, and that combination is what shows up as broad-market risk — the kind the VIX is actually built to price. Earlier this year, when the conflict was at its most acute, a range of economists put 12-month U.S. recession odds meaningfully above the historical baseline; those odds eased as the spring ceasefire held, but this month's flare-up is exactly the kind of development that could push them back up if it doesn't get resolved quickly.

So, I want to be precise about the shape of the argument, because it has two halves and they point in different directions. Half one: a large chunk of what feels like "the market is volatile" right now is really "a handful of concentrated tech names are volatile," and the VIX's calm is a legitimate, broad-based reading, not a false one. Half two: there is a separate, real macro risk sitting on the board — a prolonged Iran conflict — that could genuinely justify a higher VIX if it escalates rather than resolves. These aren't in tension. They're just different risks, with different transmission mechanisms, and they call for different conversations and different hedges. Concentration risk gets addressed through diversification and rebalancing. A macro oil-shock risk gets addressed through duration, sector positioning, and how much dry powder a household is holding. Conflating the two — either dismissing the Iran risk because "the VIX is calm," or treating every AI-earnings wobble as if it were a recession signal — leads to the wrong action in both directions.

What This Means for a Portfolio Conversation

I'd rather this land as something useful than something academic, so here's how I'd frame it for the average Canadian retail investor. First, ask what index you're actually invested in — not the label on the fund, but the handful of names that would need to disappoint for your portfolio to have a bad quarter. If that list has fewer than ten names on it, the VXN/VIX gap is a live risk, not an abstraction. A low VIX is not a certificate of safety for a concentrated book — it's a read on the broad market, and it can sit comfortably at 18 while your specific holdings experience a much rockier ride than that number would suggest. Second, keep the Iran situation on a separate line of the ledger entirely — it's a macro, oil-driven risk that could eventually show up in the VIX itself, and no amount of trimming your Nasdaq-100 exposure insulates you from it. Third, this combination — elevated concentration risk plus a live, unresolved macro risk — is exactly the kind of environment where a rebalancing conversation tends to be uncomfortable, but valuable nonetheless, because it always feels premature until the moment it doesn't.

None of this is a call to abandon technology exposure — these remain, in many cases, excellent businesses with real earnings behind the enthusiasm. Nor is it a call to panic about Iran. It's a call to know precisely which risk you're holding — concentration or macro, or both — and to make sure that's a choice you made rather than one that happened to you. If a portfolio review is overdue — or if this newsletter has you wondering exactly how concentrated your own household balance sheet has become — that's exactly the conversation Ally and I are glad to have.

On behalf of the Pyle Wealth Advisory team, have a wonderful weekend.     

Andrew Pyle