Wall Street fear gauge jumps most since 'Liberation Day' as AI trade stumbles
SPY•The VIX jumped as much as 11.5 points to an eight-month high of 28.09 on Thursday as chip and data center stock losses pulled down major indexes. Analysts linked the selloff to an unwind of the AI trade and investors reducing risk ahead of possible volatility-driven fund selling.
1. Volatility surges
The Cboe Volatility Index, an options-based measure of demand for protection against stock-market drops, rose as much as 11.5 points to 28.09, its highest level in eight months. It was last at 27.65 as the Nasdaq Composite fell 4%, with investors concerned that a change of guard in Washington could slow AI infrastructure development.
2. AI trade unwinds
Analysts said the selling may reflect an unwind of the previous session’s rally and the crowded AI trade, as well as investors cutting risk ahead of potential volatility-driven selling. The VIX’s intraday jump was its largest since the days after President Donald Trump announced sweeping import tariffs in April 2025.
3. Rebalancing risks
Leveraged and inverse ETFs and some systematic strategies typically rebalance near the market close, which can amplify moves in either direction. Analysts said the market’s next direction may depend on whether investors’ reassessment of AI investment is lasting or instead reflects trading-related rebalancing.
