Wall Street fear gauge soars as retail traders bolt amid market rout

On Thursday, Wall Street's fear gauge, the Cboe Volatility Index (VIX), spiked to its highest level in eight months as retail investors rapidly exited the market amid a rout in the AI trade. Steep losses in chip and data center-related stocks triggered the sell-off, suggesting that the Democratic sweep in the US midterm elections could hinder AI spending.

The VIX climbed 11.75 points to 28.36, marking its biggest one-day increase since shortly after President Donald Trump announced new import tariffs in April 2025. Analysts noted that much of the selling might reflect the unwinding of the previous day's rally and the crowded AI trade that has dominated the market for months. Retail traders collectively offloaded more than $1 billion of stocks, with leveraged and inverse exchange-traded funds and systematic strategies rebalancing their portfolios, potentially amplifying the late-day market moves.

The sharp decline contrasted with the market's positive reaction the day before, when investors largely ignored the perceived risk to the AI sector from the Democrats' strong performance in the midterm elections.