The Wall Street’s anxiety index, often referred to as the VIX, experienced an unprecedented surge on Wednesday, recording the second-largest spike in its history. This substantial increase was triggered by the Federal Reserve’s announcement about reducing its rate-cutting efforts, which sent shockwaves through the stock market.

The CBOE Volatility Index, or VIX, soared by a remarkable 74% to close at 27.62, a significant leap from its earlier level of around 15. This hike is only second to the historic 115% burst that occurred in February 2018 in response to a sudden disruption in funds associated with the volatility index.

The Federal Reserve’s decision to potentially lower interest rates only twice next year, as opposed to the previously projected four cuts, has raised concerns among investors. They were banking on the continuation of low rates to keep the bull market thriving. Following this announcement, the Dow Jones Industrial Average plummeted by 1,100 points, marking its 10th consecutive loss.

Typically, a VIX value exceeding 20 indicates heightened market anxiety. However, the VIX had remained below this level for most of the year, causing unease among investors who perceived the market to be excessively complacent. The VIX calculation is based on the prices of put and call options on the S&P 500, and a spike could signify investors rushing to buy put options as a safeguard against a market downturn.

Nevertheless, 2024 has already witnessed another significant VIX surge. The third-largest surge in VIX history took place on August 5, 2024, when fears of a U.S. recession and a substantial disruption in the yen carry trade sparked a nearly 65% increase in the VIX, causing it to close above 38. During the course of the day, the VIX even momentarily soared above 65.

As of Thursday, the VIX appeared to be stabilizing slightly above the 20 level, marking a drop of over 25% from the previous day.