VIX Surges 32% on Trump’s Threat — Here’s What It Really Means for Investors

TradingKey - The sudden resurgence of the U.S.-China trade war, dormant for six months, caught financial markets off guard. On Friday, October 10, the CBOE Volatility Index (VIX) — a key gauge of expected S&P 500 volatility — soared 31.83% to 21.66, its highest level since early August.

VIX Fear Index, Source: TradingView

The VIX, often dubbed the “fear gauge,” had previously spiked near 60 in April during the height of the “reciprocal tariffs” crisis. Since then, it steadily declined, spending most of the summer below 20, as the S&P 500 posted five consecutive months of gains.

What Sparked the Surge?

The sell-off was triggered by President Donald Trump’s announcement that the U.S. would impose massive new tariffs on Chinese goods in retaliation for China’s recent export controls on critical materials like rare earths. Trump also threatened to cancel his upcoming meeting with President Xi Jinping at the APEC summit.

Additional concerns weighed on sentiment:

• Risk of a prolonged U.S. government shutdown
• Threat of permanent federal layoffs
• Ongoing weakness in the U.S. labor market
• Erosion of Fed independence

These factors combined to shake investor confidence in the record-high equity market.

“Not Surprising At All” — Market Reaction Called Rational

Despite the sharp jump in the VIX, experts say the move is not alarming.

Mandy Xu, Head of Derivatives Market Intelligence at Cboe Global Markets, said a VIX reading around 21 is not concerning: There has been a modest repricing given the headlines, but there isn’t panic in the market.

Citigroup strategists noted that the S&P 500 hadn’t seen a single day with a move over ±2% in the past 100 days. When a correction finally comes, a spike in the VIX is expected.

Some traders observed that the sell-off appeared orderly. Nomura reported no surge in client demand for hedges — a sign investors aren’t rushing for protection.

While VIX call options are a popular tool for hedging against equity declines, demand remained measured.

Xu added that dealer positioning is pretty clean, with dealer’s books “lot more balanced” than during the sell off in April 2025 and August 2024.

Wall Street Remains Calm: This Is a Dip, Not a Crash

Despite the fear-index spike, Wall Street analysts maintain a bullish outlook.

As Wedbush analyst Dan Ives put it:

“This is a 1996 Moment…and NOT a 1999 Moment.”

He reiterated his advice: buy quality tech winners on weakness, rather than flee the market due to the war of words between Trump and Xi.