The three major stock indices of the New York Stock Exchange all fell on the 5th (local time), led by artificial intelligence (AI)-related technology stocks.
After the Democratic Party took control of the majority in both the Senate and the House of Representatives and local power in the U.S. midterm elections, sales poured in as concerns spread about strengthening regulations on the AI industry and slowing data center investment.
On this day, the Dow Jones Industrial Average ended trading at 51,523.06, down 1,833.06 points (3.44%) from the previous day.
The Nasdaq composite index, centered on technology stocks, closed at 24,315.00, down 1,421.52 points (5.52%) from the previous day, and the Standard & Poor's (S&P) 500 index closed at 7,353.73, down 334.89 points (4.36%).
The decline rate of the Nasdaq and S&P 500 indices on this day was the largest since April last year, when the New York stock market was shocked by U.S. President Donald Trump's announcement of mutual tariffs.
According to the Wall Street Journal (WSJ), on this day, the market capitalization of Nasdaq index constituents decreased by approximately $2.5 trillion (approximately 3400 trillion won). This is the largest single-day decline ever.
The market capitalization of S&P 500 index constituents also decreased by approximately $2.9 trillion, hitting an all-time high on a single day.
In particular, the Nasdaq index entered a technical correction, falling more than 10% from its all-time high recorded last month.
The day before, the New York stock market rallied thanks to the resolution of political uncertainty due to the Democratic Party's control of Congress and the plunge in international oil prices amid expectations of an early end to the war in Iran. However, the mood changed dramatically within a day as the negative impact of the Democratic Party's victory on the AI industry was highlighted.
The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), called Wall Street's 'fear index', soared to 28.09 during the day, recording the highest in eight months.
As the Democratic Party won elections not only in Congress but also in major regions where the data center industry is concentrated, such as Texas and Georgia, concerns have grown that regulations on new data center construction may be strengthened.
This has led to concerns that large-scale facility investment and semiconductor demand, which have supported the rise in stock prices of AI-related companies, may slow down faster than expected.
The selling was strong, with Nvidia, a leading AI semiconductor stock, falling 9.3%, Broadcom falling 10.6%, and AMD falling 17.3%.
In the aftermath, the Philadelphia Semiconductor Index plunged more than 12%, recording the largest drop since 2020, at the beginning of the COVID-19 pandemic.
According to the Wall Street Journal (WSJ), at one point this afternoon, the market capitalization of the 'Magnificent 7' (M7), which refers to seven major American big tech companies, including NVIDIA and Microsoft, evaporated by more than $1 trillion (about 1,356 trillion won).
Michael O'Rourke of Jones Trading said, "The slowdown in data center investment due to political changes will become a reality, and the performance estimates that were the core basis for the bullish theory are no longer valid."
He said, “Investors do not know at what level the performance outlook will be formed again,” and “we are reducing the proportion of risky assets until uncertainty is resolved.”
Tesla and Space
The selling that started in technology stocks spread to financial and industrial stocks, causing all 11 industries that make up the S&P 500 index to fall.
As preference for safe assets strengthened, U.S. Treasury yields fell.
The 10-year U.S. Treasury bond interest rate was 4.84% on this day, down 0.06 percentage points from the previous day (4.90%).
“It feels like the market is crumbling beneath our feet,” said Jonathan Coffina of Meridian Equity Partners. “With all the uncertainty that lies ahead, the market remains extremely vulnerable.”
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