Why did the US stock market fear index VIX suddenly surge? Is the market really going to crash?

On February 2nd, everything happened very quickly. Nasdaq futures declined nearly 1% pre-market, and the VIX fear index suddenly surged to 17.44. This number reflects a rapid shift in market sentiment—from bullish to bearish. The S&P 500 also retreated 0.43 from its high, which may seem minor, but for the U.S. stock market that has been oscillating at high levels for three months, this second breakdown of an upward trend line is sending a dangerous signal.

Behind all this is not a single factor but a confluence of multiple pressures. From technical patterns to political risks, from the bloodbath in commodity markets to cracks in economic fundamentals, the U.S. stock market is facing an unprecedented multi-directional assault.

Political Uncertainty Becomes the Final Straw

Market panic primarily stems from reassessing policy directions in the “Trump 2.0” era. The name of Kevin Waugh, the proposed next Fed chair nominated by the Trump administration, suddenly appeared in the Epstein files, raising investor concerns.

Waugh is a vocal critic of the Fed, advocating for “systemic reform,” and has openly criticized the Fed’s policy mistakes in 2024. He believes the Fed’s massive balance sheet distorts healthy economic functioning and fuels asset bubbles. His nomination signals a potential end to the era of low interest rates. Coupled with the political shock from the Epstein files, doubts about the Fed’s independence and policy coherence have deepened.

More alarming is the uncertainty caused by Trump’s signature tariff policies. If a new round of tariffs expands in scope, it could directly undermine consumer confidence and corporate profits, while further ballooning the already large fiscal deficit. Forecasts suggest that by the first three months of 2026, the U.S. deficit could reach $601 billion. Under this outlook, market anxiety and the rising VIX index form a positive feedback loop.

How the Commodity Market “Kill All” Storm Spills Over Globally

More immediate than political risks is the chain reaction in commodity markets. Gold and silver experienced epic crashes—gold prices once fell 12%, silver plummeted 36%. This was not just a price decline but a concentrated liquidation of highly leveraged long positions.

The Chicago Mercantile Exchange (CME) responded by raising margin requirements for gold and silver futures. For example, the margin ratio for silver futures for non-high-risk accounts was increased from 11% to 15%. This seemingly small adjustment triggered a domino effect: many underfunded long traders were forced to liquidate, causing a surge in sell orders that further pushed prices down, creating a vicious cycle. In just 24 hours, the notional liquidation amount in tokenized futures reached $140 million.

This storm also impacted domestic markets. Several gold shops in Shenzhen’s Shui Bei area faced “margin calls” due to participating in gold futures speculation, with involved amounts possibly reaching hundreds of billions of yuan, affecting thousands of investors. Crude oil prices also declined 5.51% to $61.62 per barrel.

Most unsettling is that this “kill all” in commodities is evolving into a global deleveraging event. When investors are forced to liquidate high-leverage positions in commodity futures, they need to raise cash by selling assets elsewhere. This means risk assets like Asian stocks and Bitcoin are also being dumped—Nikkei down 1.11%, Hang Seng plunging 3.15%, Bitcoin falling below $75,000. If this cross-market liquidity crunch continues, the next target for forced selling will likely be high-valued U.S. stocks. The spike in VIX reflects this growing market-wide panic.

Cracks in Economic Fundamentals and the AI Bubble Double Blow

Economic fundamentals are equally concerning. The 10-year U.S. Treasury yield has risen to 4.218%, and the U.S. government’s annual interest payments on debt have surpassed $1 trillion, raising fiscal worries. The upcoming employment report is a key focus—if data shows an unexpectedly cooling labor market, fears of recession will intensify rapidly.

The Fed maintains steady rates but faces limited policy space amid persistent inflation. Historically, inverted yield curves have reliably signaled recessions, and markets are once again approaching that dangerous edge.

The AI narrative that supported the 2025 market boom is showing cracks. Recent weakness in the Nasdaq, especially in software stocks, indicates that the commercialization and profitability of AI are taking longer and are more difficult than many expected. The upcoming earnings season, particularly for giants like Amazon and Alphabet, will be a test of AI’s real value. If earnings disappoint and VIX remains high, a large-scale sell-off becomes inevitable.

The Ghost of 1979: Will Stagflation Recur?

What unsettles veteran investors most is the striking similarity between today’s geopolitical and macroeconomic environment and 1979.

That year marked the end of détente—Soviet invasion of Afghanistan worsened U.S.-Soviet relations, and global geopolitical tensions peaked. Simultaneously, the Iranian Revolution triggered a second oil crisis, sending oil prices soaring and plunging the world into stagflation. The Fed, under political pressure, failed to act decisively, leading to runaway inflation. Only with Paul Volcker’s “shock therapy” of sharp rate hikes was inflation finally tamed, but at the cost of a deep recession.

Today, we face a similar scenario. Middle East geopolitical tensions are rising; market Polymarket data shows a 31% chance that the U.S. will strike Iran by the end of February. Energy prices are volatile, and global inflation remains high. The potential for political interference in Fed decisions, along with Waugh’s hawkish stance, echoes past policy missteps.

If history repeats, aggressive tightening to control inflation could end the current artificially prolonged bull market, trigger a dollar crisis, and cause a major correction in stocks reminiscent of the late 1970s and early 1980s. At that point, the VIX spike will just be the beginning—real market turmoil will be unfolding.

Conclusion: It’s Time to Reassess Risks

From broken technical trendlines to surging VIX, from cross-market liquidity crises to cracks in economic fundamentals and the AI bubble, every signal warns investors: a critical turning point is near. Rising political uncertainty, bloodbath in commodities, deteriorating fundamentals, and the deflation of the AI hype are converging to pressure U.S. stocks.

For investors riding the 2025 rally, it may be time to reevaluate risks and prepare for potential market volatility. When the fear gauge VIX is already warning, vigilance is not paranoia but prudent market awareness.