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Wall Street fear gauge jumps most since 'Liberation Day' as AI trade stumbles
Reuters • • business
Key Points:
- The VIX, Wall Street's key measure of market anxiety, experienced its largest intraday increase in over 18 months due to sharp declines in chip and data center stocks, which dragged down major indexes.
- Analysts suggest the selloff partly reflects a reversal of the previous day's strong rally and a crowded AI trade, with investors reducing risk ahead of anticipated volatility-driven selling by funds and strategies.
- The abrupt rise in volatility contrasts with the prior day's optimism, where investors dismissed concerns about the AI trade despite political developments, highlighting a sudden shift in market sentiment.
- Some market decline is linked to investors preemptively exiting positions ahead of rebalancing by leveraged and inverse ETFs and systematic strategies that amplify late-day market moves.
- The market's future depends on whether the reassessment of the AI investment theme is temporary or signals a more fundamental shift, which could pose challenges if it proves secular.
