Two days after the US election, the US stock markets crashed. Concerns about stricter AI regulation are triggering a sell-off. But another factor is aggravating the price slide.
Traders on the New York Stock Exchange: Two days after the US midterm elections, all major US indices are deeply in the red. Photo: AFP
New York, Düsseldorf. For the US financial magazine “Barron's” it is an “AI bloodbath”, for the Kobeissi Letter platform it is “absolute madness”. Just two days after the midterm elections, prices in the USA collapsed across the board.
The companies in the S&P 500 collectively lost around three trillion dollars in market value on Thursday - more than ever before in a single trading day. For the companies in the Nasdaq index, the loss totaled around $2.5 trillion, also a record.
The Nasdaq index fell 5.5 percent by the close of trading. It was more than ten percent below its record high and was in a correction. The other major US indices also fell significantly. The Dow Jones erased its 1,500-point gain from the previous day and closed 3.4 percent in the red. The market-wide S&P 500 lost 4.3 percent, the technology selection index Nasdaq 100 slipped 6.4 percent - the biggest daily loss since the pandemic. The losses continued after trading.
For the major US indices, it was the strongest daily loss since Donald Trump announced comprehensive import tariffs in April 2025.
The US volatility index VIX, also known as Wall Street's fear barometer, rose by around 70 percent.
The trigger is seen as the Democrats' surprisingly strong performance in the US congressional elections. There is concern in the market that the Democrats could significantly slow down the expansion of the infrastructure for artificial intelligence (AI). Resistance to data centers was a central election campaign issue, and thus a reason for the share price losses.
But it wasn't the only factor.
In just 40 minutes, the S&P 500 destroyed two trillion dollars in market capitalization, Kobeissi Letter wrote on Thursday on the short message platform X. “This is one of the fastest losses in market capitalization in stock market history.”
The focus was on technology stocks: Sandisk, AMD and Micron shares lost double digits. Prices had already fallen on Wednesday, and the sell-off intensified on Thursday. The Philadelphia Semiconductor Index, which tracks the price development of large semiconductor companies, closed more than twelve percent in the red. That was its biggest daily loss since the corona pandemic.
Nvidia shares fell by more than nine percent, losing all of their gains since the beginning of the year. The market value of the chip manufacturer, which was until recently the most valuable listed company in the world, fell by almost $450 billion. Broadcom lost more than ten percent, Qualcomm closed 9.5 percent in the red.
But the titles of the so-called neocloud companies, which primarily build and rent out computing power with powerful chips for AI applications - Coreweave, Nebius or Iren - also fell by up to 17 percent.
Instead, investors bought US government bonds, which were considered safe. Due to demand, their prices rose, but in return the yields fell. The yield on the key ten-year US government bond reached its lowest level in two months on Thursday at around 4.82 percent.
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Recovery rally only short-lived
The recovery rally after the midterms was therefore short-lived. On Wednesday, the euphoric mood drove the US indices higher. Even the price losses of chip manufacturers and neocloud providers could not dampen the overall mood.
But just one day later that is no longer the case. The losses spread on Thursday to the large hyperscalers such as Meta, Amazon and Microsoft. On Wednesday, investors viewed a possible slowdown in the pace of investment by tech companies as positive. Their high AI investment sums had recently put a considerable strain on their cash flow.
Many economists are starting to calculate how a slower expansion of data centers with corresponding capital investments will affect the economy, says Torsten Slok, chief market economist at private equity investor Apollo.
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From the perspective of BNY market strategist Geoff Yu, markets are still assessing the impact of the election results. And it is obvious that investors are not taking any additional risks. Some of the hyperscalers would scale back their investment intentions. “These investments have already been criticized by major investors in terms of profitability and returns.” The results of the midterm elections would have increased this pressure. For Yu, however, the bigger question is whether the overall economy will also be affected.
The trigger for the sudden price slide on Thursday was not just a possible slowdown in AI expansion. The disappointing outlook from chip manufacturers Qualcomm and Arm also contributed to this, as fund manager Dirk Althaus from ICM Investment Bank says. But he sees the real reason as profit-taking in the sectors that performed the strongest this year. “We see a correction in a hot segment, not an end to the AI boom.”
» Also read: “Absolutely brutal week” for tech investors – Nasdaq slips, Intel loses around 29 percent
Dangerous volume of leveraged bets
For the analysis house Kobeissi, the sudden price losses are also the result of credit-financed bets that coincide with a sudden change in mood on the market. “That’s exactly what happens when sentiment changes in an overleveraged market.”
Investors borrow money from brokers because they can use it to buy even more shares. In this way, they leverage their returns and at the same time drive the stock rally even further.
And figures from the US supervisory authority Finra show how strongly the market has relied on this: According to this, US investors took out securities loans worth almost $1.5 trillion in September in order to buy stocks. Compared to the same period last year, this is an increase of 350 billion dollars, and over the next two years the increase is even 700 billion dollars.
This high volume becomes dangerous when the market trend changes.
Investors deposit shares as security for the loans. If their prices fall, the value of the collateral also falls. The brokers then ask investors to inject fresh money – a so-called margin call. If investors don't respond, brokers sell the shares to limit the loss for all sides. This accelerates the downward trend in the market. Experts have been warning about the dangers of credit-financed purchases for a long time.
In order to service these margin calls, hedge funds may also have been forced to quickly liquidate their positions. According to Ryan Detrick of the Carson Group, it was the largest reduction in gross hedge fund positions in a decade.
Tech analyst Melvin Mathew warned on X that the sell-off could expand quickly. If billions were withdrawn from leveraged portfolios, the funds would have to sell positions. It is unclear how much has already been sold and how many more funds will have to sell in the coming days because of their losses. “I think we’re going to find that the damage to Wall Street is significantly greater than the market has been pricing in.”
What's next?
So far, US stock markets have always recovered after midterm elections. On the one hand, this is due to the end of the uncertainty, but also because a political deadlock - a common result of the midterms - is viewed positively on Wall Street. This limits extremely expansive fiscal policy. But experts note that history does not repeat itself. After all, a not insignificant part of the US economy was driven by the high level of AI investment, which is now at risk of slowing down.
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Joe Maher, market economist at Capital Economics, notes that sentiment toward AI stocks has previously been fragile and the U.S. stock market has shown many signs of a late recovery. The economist does not expect the market to quickly return to its highs from the beginning of October.
And Nadege Dufosse, head of multi-asset at Candriam, suspects that some sectors of the stock market could continue to follow Wednesday's trend, when chips and Neocloud values fell, for a while. “A rotation is currently taking place,” says the analyst. This particularly affects tech stocks.
There is currently a rotation taking place as Nadege DufossePortfolio Manager at Candriam
From the perspective of Daniela Hathorn, analyst at capital.com, investors' focus is currently shifting away from highly valued technology and AI stocks towards strong European stocks.
However, very few people on the market expect the AI boom to end. In the short term, the change in the political environment could have an impact, said ARM boss Rene Haas on the US stock exchange broadcaster CNCB. The group's share prices fell by around twelve percent.
In the longer term, however, other factors are in the foreground in his view. He had warning words for politicians. Even if the expansion of data centers in the USA were slowed down, “other countries are ready” to step in. He does not assume that the USA will actually give in in the race for AI. “China isn’t putting the brakes on, and the US wants to keep up.”
At the same time, Mathew emphasized that the demand for computing capacity had not suddenly disappeared. Even if fewer new data centers are built, that does not mean the end of the investment cycle. Now it is important to observe whether the selling pressure subsides and whether hedge funds begin to liquidate their positions. Without a return of institutional investors on a larger scale, he believes that AI stocks will have difficulty recovering.
