Wall Street fear gauge spikes as retail traders flee amid market turmoil
The Cboe Volatility Index logged its biggest intraday jump in 18 months as the AI trade unraveled on Thursday.
Wall Street's fear gauge spiked and retail investors rushed to exit the market on Thursday as the artificial intelligence trade unraveled, according to reports by The Economic Times and BusinessLine. Steep losses in chip and data center-related stocks dragged down major indexes amid fears that the Democratic sweep in the US midterm elections could stall AI spending.
The Cboe Volatility Index (VIX), which measures demand for protection against market drops, jumped 11.75 points to an eight-month high of 28.36. The index closed at 28.18, while the Nasdaq Composite fell 5.5 per cent as investors worried that political changes in Washington might slow AI infrastructure development.
Retail investors offloaded more than $1 billion, including ETFs, according to JPMorgan data. Viraj Patel, a global macro strategist at Vanda Research, noted that retail traders are on track for their largest day of single-stock selling since the Covid crash.
Analysts suggested the selloff reflects an unwind of the previous session's rally and the crowded AI trade. Steve Sosnick, chief strategist at Interactive Brokers, said the market reaction contrasted with the previous day when investors brushed aside election threats.
Leveraged exchange-traded funds (ETFs) were expected to sell approximately $47 billion of stocks into the close to rebalance, according to an intraday note from Nomura. This would represent the second-largest amount in Nomura's data dating back to July 2006.