Stocks Plunge on AI Fears, Volatility Erupts

(Thursday market close) Post-election elation in financial markets on Wednesday quickly turned into a thundering sell-off Thursday as investors fled AI names, driving the S&P 500^® Index to its worst one-day loss since April 2025

The tech-heavy Nasdaq Composite^® entered correction territory, having fallen about 12% from a record high set just a month ago. Thursday's 5.5% drop was fueled by fears a Democratic Congress could more strictly regulate data centers, with some profit-taking likely contributing. The selling spread to many industries also associated with the AI build-out, including industrial and energy firms.

Investors dumped chip companies, including giants like Nvidia (NVDA) and Advanced Micro Devices (AMD) that could see revenue and profit growth weaken if data center construction slows and hits chip demand. Nvidia fell more than 9% to hit a seven-month low, down more than 25% from its October 6 high. AMD plunged 17%, and Broadcom (AVGO) dropped 10%.

Struggles at Nvidia, until recently the highest capitalized name on Wall Street, hurt the S&P 500 and the Dow Jones Industrial Average^®, which respectively fell 4.35% and 3.44%.

The PHLX Semiconductor Index (SOX) fell 12.2%, 32% below the peak it hit a month ago Friday.

"The fundamentals surrounding the AI infrastructure buildout—or the potential pace of that buildout—have been under fire due to questions around future funding, and the blue sweep just exacerbated that concern," said Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research (SCFR).

Policy isn't the only concern, he added. There are lingering questions about return on investment for "hyperscalers" like Alphabet (GOOGL), Amazon (AMZN), Meta Platforms (META), and Microsoft (MSFT) that in many cases have turned free cash flow negative to fund AI plans. There's also fear about commoditization of AI models and even potential cannibalization after last week's earnings from Alphabet showed a drop in the average click-through rate on queries.

The plunge in AI-related stocks might have had less impact on the broader market if the AI buildout wasn't so tied up with the economy in general.

"Although economic data has been healthy and S&P earnings per share growth has been exceptional, since AI is so important to the overall economy the sell-off in tech and the AI complex has the potential to challenge future economic growth assumptions," Peterson said.

Economic data Thursday appeared to reinforce positive sentiment, with third quarter productivity rising 3.6% year over year, unit labor costs falling, October layoffs coming in relatively light, and weekly initial jobless claims near historic lows. The concern is that all these readings might lag if AI spending eases. The AI construction boom has been compared with previous economic impacts from railroads, highways, and telecom.

Some of Thursday's selling appeared technical as support levels were erased on the way down. The market was already vulnerable entering the session after major indexes violated key levels last week. Thursday's plunge pushed the Nasdaq-100^® Index (NDX) and the Nasdaq Composite below their 200-day moving averages. The SOX also failed a re-test of support at the 200-day and fell to six-month lows. Almost the entire SOX rally from April through June is now wiped out.

Volatility surged. The Cboe Volatility Index^® (VIX)—sometimes called the fear index—topped 28, the highest since March. It rose 69% on the day, an astonishing climb for a metric that spent most of the summer and early fall indicating little uncertainty or downside hedging demand.

While tech suffered the biggest losses, no sector escaped Thursday's carnage. Defensive areas like staples and utilities fared best, sliding less than 1%. Consumer discretionary and financials, which performed well Wednesday, were among Thursday's hardest-hit sectors. Tech fell more than 7%.

By late Thursday, all 30 DJIA stocks were lower on the day, and the S&P 500 Index had turned red for the second half of the year, erasing all gains since July 1. It was hard to hide. Only 70 S&P 500 stocks were up for the day heading into the session's final hour.

At market close, the S&P 500 Index (SPX) sank 334.89 points (-4.36%) to 7,353.73, while the tech-heavy Nasdaq Composite ($COMP) plunged 1,421.51 points (-5.52%) to 24,414.99, and the Dow Jones Industrial Average^® ($DJI) fell 1,833.06 points (-3.44%) to 51,523.06, erasing all of Wednesday's dramatic gains.

The benchmark 10-year Treasury note yield slid about five basis points to below 4.84%, the lowest since early September, suggesting investors sought perceived "safety" away from equities.

Thursday's action followed the relief rally Wednesday that reflected easing uncertainty around the election and hopes for solutions to long-term issues like high gas prices and tariff-related inflation.

The Democrats' stunning victory sent markets surging in opposite directions Wednesday and Thursday. Post-election volatility isn't unusual, as the market went through similar dramatic rallies and declines after the 2022 midterm election—another that coincided with partial change in control on Capitol Hill and rising Federal Reserve rate policy.

Fed policy comes back under in the microscope early Friday when the government shares its October nonfarm payrolls report, expected to show jobs growth of 65,000, up from 29,000 in September. Unemployment is expected to stay at 4.2%.

Pressure from possible rate hikes is one of many metrics playing out now, and it would likely take a very soft jobs report and signs of progress in October inflation data next week to make the market think twice about what looks like more tightening next month.

Odds of a December hike as of late Thursday were 67%, down from around 80% before the stock market sell-off. However, the Fed doesn't typically take the stock market into account when deciding on rates.

Technically, the S&P 500 Index is now well below key support levels and may not have another technical area of support unless it drops to 7,300, near the 200-day moving average. There was little sign Thursday of investors swooping in to buy the dip. Major indexes made new intraday lows in the last hour of trading.