U.S. stock markets experienced a significant downturn this week, with approximately $2.5 trillion in paper value erased from Wall Street. This decline followed midterm elections where Democrats secured control of both chambers of Congress, shifting the legislative landscape as President Donald Trump's final two years in office begin. The selloff, particularly pronounced on Thursday, saw major indexes and the artificial intelligence (AI) sector take substantial hits.
"What the markets were missing was a spark to start the selloff. It seems that the mix of the election result and some disappointing tech earnings results was enough to tip markets over the edge," Jakub Rochlitz, Analyst at eToro.
Federal Reserve data indicates that U.S. households hold a record 48 percent of their financial assets in stocks, a figure that surpasses the 38.7 percent seen at the peak of the dot-com bubble. This high exposure was tested as the market reacted to the election results and other contributing factors. The tech-heavy Nasdaq Composite ended down 5.5 percent on Thursday, entering correction territory after four weeks of steady erosion. The S&P 500 also fell 4.3 percent, with all of its sectors closing in the red. This marked the biggest single-day loss for both indexes since April 2025, when President Donald Trump unveiled his “Liberation Day” tariffs.
The artificial intelligence sector bore the brunt of the market's reaction. Nvidia shares gave up 9.3 percent, Broadcom shed 10.5 percent, and Qualcomm closed the session 9.5 percent lower. Traders connected this selloff directly to the new Democratic control of Congress. With Democrats set to take charge in January 2027, concerns have arisen that the government could pause the construction of new data centers nationwide. Such a move would likely translate into fewer orders for AI chips and related equipment, which currently fuel a significant portion of the country’s economic growth.
Jakub Rochlitz, an analyst at eToro, identified the midterm results as the "most obvious catalyst" for the market's reaction, stating that markets "priced them in." However, Rochlitz also pointed to an earlier trigger. "But the first domino to fall was Anthropic’s and OpenAI’s growth numbers, which failed to impress investors at the beginning of October," Rochlitz told the Daily Mail. He explained that these earlier disappointing numbers had made the market "more sensitive to negative news, which has piled up in recent days." Nic Puckrin, a former Goldman Sachs analyst, echoed this sentiment, describing the election's role as "just the gust of wind that pushed over the house of cards that was already getting shaky." Rochlitz concluded, "What the markets were missing was a spark to start the selloff. It seems that the mix of the election result and some disappointing tech earnings results was enough to tip markets over the edge."
Investor borrowing also added fuel to the market's volatility. Margin debt, the money investors borrow to finance their positions, reached a record $1.5 trillion in June, marking an increase of roughly 50 percent from the previous year. Billionaire Elon Musk, who reportedly spent nearly half a billion dollars supporting Republican candidates in the 2026 midterms, saw a substantial impact on his holdings. Tesla stock dropped almost 12 percent on Thursday and nearly 15 percent over two days, removing about $39.4 billion from his fortune. SpaceX has slid more than 12 percent since Election Day, costing Musk $113 billion on paper, bringing his total losses since the election to $152 billion.
Democratic leaders have announced a tougher posture on AI as they prepare to assume control of Congress. Their list of priorities includes mandatory safety testing, federal oversight of advanced AI models, curbs on data center expansion, and protections against rising electricity bills. Puckrin cautioned that the market should not expect immediate clarity, stating, "It will take months for the market to figure out what impact the Democrats will really have on the AI buildout, and the impact on data center construction will take even longer to actually materialize."
Investors are now closely monitoring two key indicators: the guidance hyperscalers provide on future capital spending and whether these companies steer more infrastructure projects to Asia or the Middle East instead of the United States. Local communities had already applied pressure closer to home, with ballot measures aimed at data centers passing across the country by wide margins. Some of these measures banned construction outright, while others imposed temporary moratoriums, set limits on energy consumption, or required resident approval before work could begin. The mood on Wednesday, however, was markedly different, with stocks rising as election results arrived, even as Democrats claimed both chambers. President Donald Trump had previously claimed credit for that rally on Truth Social, stating, "Stock Market just hit another Record High — 91 Days in just a short period of time — Less than two years. Your 401(k)s are through the roof. Record Setting All!"
