US stock markets experienced a dramatic $3.7 trillion wipeout as Wall Street's Magnificent Seven suffered their worst day since March 2020. According to Bloomberg, Wall Street took roughly 24 hours to reverse its initial welcome of the US midterm election results, with investors first buying stocks as election uncertainty cleared before reassessing what Democratic control of Congress could mean for data center expansion. The Nasdaq 100 recorded its largest decline since March 2020, dragging the Nasdaq into a correction and marking its worst day since March 2020. The selloff came just a day after US stocks had rallied following the midterm elections, with 2,344 stocks falling on the New York Stock Exchange compared to just 416 that ended higher, meaning declining stocks outnumbered advancing ones by nearly six to one. As reported by The Financial Express, 310 companies, or 61.6% of the S&P 500, are now trading at least 10% below their highest levels in the past 52 weeks.
The selloff was driven by a cascade of forced selling across multiple institutional categories, with retail investors' net selling ranked behind only two sessions during the March 2020 pandemic shock, according to Vanda Research. Hedge funds and long-only asset managers subsequently joined the selling, turning the early retreat into a much larger decline as prices fell and volatility climbed. Goldman Sachs estimated technology-focused hedge funds lost more than 4% during Thursday's trading session, while fundamental long-short funds lost approximately 1.3%. Volatility-control funds faced an estimated $61 billion reduction in stock exposure as market turbulence grew, with leveraged exchange-traded funds facing an estimated $47 billion in stock sales through rebalancing. Options positioning added pressure as prices fell, with Nomura estimating options dealers' negative gamma exposure could generate approximately $7 billion in additional selling for every 1% market decline.
Baskets covering storage, optical networking, data centers and AI semiconductors dropped between 12% and 15%, according to Goldman Sachs prime brokerage trading desk. The Philadelphia Semiconductor Index crashed 8.4%, as chipmakers and companies linked to AI data centers were among the biggest losers. Tesla fell 10.8% in percentage terms, while Nvidia shares fell 9.3%, wiping out the gains the company had made since the beginning of the year and reducing its market value by more than $450 billion. Other major tech companies also suffered significant losses, with Micron and AMD dropping about 17% each, while Qualcomm shares dropped more than 9% after the company gave a disappointing forecast for its future earnings. The selloff wiped out the gains made during Wednesday's rally, with the Dow having jumped 1,569 points and the Nasdaq gaining 1.44% after the midterm election results.
The sharp fall in technology stocks came as investors weighed the possibility of tighter rules for the AI industry and rising costs of building the infrastructure needed to run artificial intelligence technology. According to Bloomberg, Democrats won key races in Texas, Georgia and Ohio, states accounting for around 40% of planned US data centre capacity, with Texas's governor-elect pledging a moratorium on new buildouts. Markets read this as a threat to the AI buildout and sold first, though the analysis suggests this represents a political shock rather than genuine regime change. The concern is that many of the companies involved in the AI boom have spent billions of dollars on data centres, chips and other infrastructure, and if that expansion slows, investors may start questioning whether these companies will be able to earn enough money to justify the huge amounts they are spending. Rising borrowing costs are adding to these worries, as building large data centres requires enormous amounts of money, and higher interest rates make it more expensive for companies to borrow and finance these projects.
The VIX climbed from 16.6 near the opening to almost 28 at the close, accompanying the fund losses, retail withdrawals and systematic selling described by trading desks. Bitcoin traders faced their own wave of forced selling, with the cryptocurrency market recording substantial losses during the same session. As crypto.news previously reported, Bitcoin's drop below $76,000 accompanied $954.38 million in long liquidations, against $127.30 million in shorts. CoinGlass data put the number of liquidated traders at 210,326 across the preceding 24 hours, with long positions accounting for 88.2% of liquidations and $817.35 million in bullish positions closed during the latest four-hour window. Total cryptocurrency market capitalization fell 4.6% to approximately $2.66 trillion, with Bitcoin down 5.8% at $75,954, Ethereum down 7.5% at $2,251 and Solana down 7.9% at $89.16.
