Euphoria met with raw fear as shares nosedived on Wall Street overnight.
Technology stocks were the hardest hit, with the NASDAQ plunging 6.3 per cent.
But the losses were widespread as the benchmark S&P 500 dived 4.3 per cent.
The heavy selling followed a day of unbridled optimism on Wall Street as investors mulled whether a Democrat-controlled Congress would inject some rationality around the AI infrastructure rollout.
A major rout on Wall Street has real implications for millions of Australians.
Most workers, via their superannuation, have approximately $4.5 trillion invested in financial markets and roughly 20 per cent of it is exposed to movements on Wall Street.
The Trump short
The selling on all three of Wall Street's main indices was unrelenting, and it accelerated throughout the session, "with the euphoria of Wednesday's post-election rally rapidly evaporating", according to Tapas Strickland from trading platform Moomoo.
Front and centre is the once-in-a-generation build-out of AI and associated infrastructure, such as data centres.
The thinking on election day was that it would be better managed under a Democrat-controlled Congress — that it would slow down to a point that major players such as OpenAI and Anthropic would be able to pay for their investments with cash rather than debt or equity (shares).
That thinking turned on its head overnight.
"What is clear is the Democrats' election victory is the motivation," Strickland said.
"Investors believe their control of Congress and key states fundamentally alters the outlook for the artificial intelligence sector due to voters' rejection of data centre developments in dozens of local ballots."
Take Texas for example. Both the governor and senator have indicated they are likely to halt or pause AI data centre development.
The robots take over
Increasingly too major investment firms are using automated trading software to trade the market.
Strickland said the algorithms went into overdrive overnight.
And unlike human beings, which may rationally see few buyers in the market and choose to sit tight, the bots kept selling, causing the market to "gap down" or fall rapidly.
"Right now, interpretation of the session's events is not clear cut as we also saw defensive areas of the market sold off sharply, sending the Dow Jones Industrial down 3.4 per cent," Strickland said.
"While this clearing-out process could actually be constructive for the market, investors should stay cautious until the dust settles in a few days."
Floodlines Research founder Anna Wu is also treating the Wall Street sell-off with a degree of caution.
"The chip rout is the 'blue trade' doing the damage. Markets are treating a Democratic Congress as a brake on the AI build-out, but [US President Donald] Trump still has his veto, so this is largely a sentiment shock rather than a change in fundamentals," Wu said.
"Meanwhile the defensive trades are working. Treasuries rallied again, pulling the 10-year yield to a two-month low near 4.84 per cent, and gold is staging a comeback above $US4,100."
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A lot at stake
The next few trading sessions will be critical for gauging financial market sentiment.
Given Thursday's market optimism, you could put recent falls down to volatility.
Indeed, Wall Street's fear gauge, the VIX index, soared an eye-watering 70 per cent overnight to 28 points.
Anything above 30 indicates a very nervous market, so it's something to watch.
Montgomery Investment Management's Roger Montgomery thinks some air has been let out of the AI tech bubble.
"Hype that leads to overproduction and overpricing is hitting the physical reality of limited resources and the financial reality of inferior returns on the trillions spent."
The Australian share market is dominated by banking and mining stocks, so the flow-on effect to local investors seems muted at the time of writing this.
But the real pain may come if Wall Street selling continues and Australians, especially those in and approaching retirement, see their superannuation balances deteriorating rapidly.
You can see how a wealth shock in terms of shares and property for older Australians could also act as a further headwind for the Australian economy.
There's a lot on the line.
