U.S. stocks fell sharply on Wednesday, pushing Wall Street's most watched market volatility gauge to a three-month high and boosting options trading volume, although some strategists dismissed signs of panic.

The S&P 500 fell 2.3% on the day, its biggest one-day drop since the end of 2022, after Tesla Lackluster earnings reports from Apple and Alphabet left investors questioning whether a 2024 rebound driven by big tech and artificial intelligence is sustainable.

As stocks plunged, the CBOE Volatility Index, or VIX, surged to 18.46, its highest level since late April. The index is colloquially known as Wall Street's "fear index" because it measures demand for protection against stock market volatility. Trade Alert data showed that VIX options were changing hands at nearly twice the usual rate on Tuesday.

The sell-off highlights the broader market’s vulnerability to weakness in big technology stocks, which have boosted indexes this year even as they stoke concerns about stretched valuations and evoke memories of the dot-com boom more than two decades ago.

However, options market participants say the decline so far looks more like an orderly pullback than a collapse.

“We’re not seeing a lot of fear in the market, which means people are not going out and trying to buy protection aggressively,” said Matthew Tym, head of equity derivatives trading at Cantor Fitzgerald. “It’s a very orderly and passive state, which to me suggests that nobody is in distress right now.”

He said that despite recent volatility, months of strong stock market returns could leave investors well-positioned to withstand a modest increase in volatility.

The S&P 500 is up 14% this year, while the tech-heavy Nasdaq The 100 fell 3.5% on Wednesday, but is up 13% so far this year. The two major indexes are now 4% and 8% below their all-time highs, respectively.

Nvidia's sharp surge this year has driven a large part of the broader market's gains, but the stock fell 6% on Wednesday and is still up about 130% this year. The VIX index is still below its peak reached during recent market weakness. In October last year, during a sharp sell-off, the index climbed as high as 23.

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