Small caps and growth stocks are out and utilities and energy stocks are back in following a surprise inflation reading that has sent U.S. equity markets plunging on Tuesday.

Such was the turmoil, that theCBOE VIX Volatility Index, the so-called Wall Street fear gauge, spiked from around 13.9 to 17.9 — a 28% jump — hitting its highest level since Nov. 1. It ended the day at 15.85.

"At present, this increase is the biggest jump since March 9th and the volatility index stands at over a three-month high. And yet, these are still very low levels of overall implied volatility," said analyst John...