Thursday's session ended with steep losses across the stock market as a deepening selloff in AI-related stocks spread well beyond technology, wiping out Wednesday's post-election rally and sending the major averages to their worst finishes since April 2025. The S&P 500 (-4.4%), Nasdaq Composite (-5.5%), and DJIA (-3.4%) all finished near their session lows, with the Nasdaq entering correction territory, down more than 10% from its October 6 closing high. The DJIA also fell below its 50-day moving average, joining the other two major averages beneath that technical marker.

The reversal followed Wednesday's relief rally in response to the midterm elections, which gave Democrats control of both chambers of Congress. While most stocks participated in yesterday's advance, semiconductor and AI infrastructure names were notable exceptions as investors began weighing the prospect of tighter regulation slowing the development of data centers. Those concerns intensified Thursday, raising questions about whether the companies tied to the AI buildout can deliver the earnings growth needed to justify their elevated valuations.

The information technology sector (-7.3%) suffered the largest decline by a wide margin, dragged lower by a 12.3% plunge in the PHLX Semiconductor Index. NVIDIA (NVDA 181.60, -18.53, -9.26%) fell into bear market territory, while Advanced Micro Devices (AMD 404.40, -84.38, -17.26%) and Arm Holdings plc (ARM 166.72, -25.08, -13.08%) faced particularly heavy selling. Qualcomm (QCOM 156.75, -16.44, -9.49%) added to the weakness after its quarterly results and guidance highlighted continued handset weakness and margin pressure despite progress in its automotive and data center businesses.

The pressure extended to companies providing infrastructure for AI development. CoreWeave (CRWV 43.66, -4.76, -9.83%) fell to its lowest level since May 2025, while the Roundhill Neocloud ETF (NCLD) plunged 12.3% to a fresh record low. The industrials sector (-4.1%) also faced substantial losses as companies tied to data center construction and expansion were caught in the selling.

Unlike Wednesday, when mega-cap hyperscalers largely weathered the weakness in AI infrastructure stocks, Thursday's retreat engulfed much of the market's established leadership. The Vanguard Mega Cap Growth ETF fell 5.8%, contributing to losses in the consumer discretionary (-3.7%) and communication services (-1.9%) sectors. The S&P 500 Equal Weighted Index (-2.8%) substantially outperformed the market-cap-weighted benchmark, illustrating the outsized impact of the largest stocks on the major averages.

Tesla (TSLA 343.69, -41.50, -10.77%) was among the hardest-hit mega-cap names, extending its post-election decline amid concerns that Democratic victories could bring increased scrutiny of Elon Musk's businesses, particularly a potential combination with SpaceX (SPCX 123.62, -12.30, -9.05%). The broader retreat in AI-related valuations compounded those concerns, while Tesla's recent earnings report offered limited reassurance about the profitability of its existing operations.

Elsewhere in the consumer discretionary sector, DoorDash (DASH 179.92, -18.67, -9.40%) faced additional selling pressure following Amazon's (AMZN 260.21, -5.82, -2.19%) announcement of a partnership with Uber (UBER 68.81, -1.06, -1.52%) to integrate Uber Eats into its shopping platform for Prime members. Expedia Group (EXPE 272.48, -43.40, -13.74%) also struggled after its Q4 outlook pointed to slower growth and margin compression.

Software stocks were another source of weakness, with the iShares Expanded Tech-Software Sector ETF (IGV) falling 4.3%. Palantir Technologies (PLTR 154.99, -16.71, -9.73%) extended its recent slide despite reporting better-than-expected quarterly results earlier in the week, as concerns about slowing bookings growth and its premium valuation continued to weigh on sentiment. AppLovin (APP 356.10, +84.35, +31.04%), however, was a notable exception to the widespread technology weakness, rallying sharply after topping Q3 earnings and revenue expectations, issuing upbeat revenue guidance, and announcing a $3.2 billion share repurchase authorization.

All 11 S&P 500 sectors finished lower, with the materials (-2.7%), financials (-2.8%), and health care (-2.5%) sectors among those facing sizable declines. The consumer staples (-0.7%) and utilities (-0.7%) sectors held up relatively well, but even defensive areas were unable to escape the selling.

The energy sector (-2.8%) also finished lower despite WTI crude oil futures rebounding $2.32 (+2.6%) to $90.55 per barrel following Wednesday's steep decline. The selling was equally pronounced outside the large-cap space, with the Russell 2000 (-4.6%) and S&P Mid Cap 400 (-3.9%) suffering sharp losses.

The severity of the retreat also drove a sharp increase in demand for downside protection, sending the CBOE Volatility Index soaring 60.8% to 26.69.

The sharp reversal left the major averages firmly lower for the week and highlighted how quickly concerns surrounding the AI investment cycle have spread into the broader market. What began as weakness in a relatively narrow group of semiconductor and infrastructure stocks has become a widespread retreat, with the loss of mega-cap leadership amplifying the damage across the major averages.

U.S. Treasuries had a strong showing on Thursday, bolstered by another round of gut-wrenching volatility in AI-related stocks that saw some safe-haven buying. The 2-year note yield settled down ten basis points to 4.49%, and the 10-year note yield settled down six basis points to 4.84%. 

• Russell 2000: +9.9% YTD
• S&P Mid Cap 400: +8.3% YTD
• S&P 500: +7.4% YTD
• DJIA: +7.2% YTD
• Nasdaq Composite: +4.6% YTD

Reviewing today's data:

• Nonfarm business sector labor productivity increased 3.6% in the third quarter (Briefing.com consensus: 3.1%) following an upwardly revised 2.1% increase (from 1.4%) in the second quarter. Unit labor costs decreased 0.7% (Briefing.com consensus: 1.4%) following an upwardly revised 1.9% increase (from 1.2%) in the second quarter.
  
  • The key takeaway from the report is that there has been a pickup in productivity that has curtailed labor cost inflation. That is a good combination for corporate earnings prospects.
• Initial jobless claims for the week ending October 31 decreased by 6,000 to 189,000 (Briefing.com consensus: 197,000), which is the lowest level since July. Continuing jobless claims for the week ending October 24 increased by 23,000 to 1.718 million.
  
  • The key takeaway from the report is that there simply isn't much layoff activity. That consideration is an offshoot of a demand environment that is still looked at by employers as being quite solid overall.
• 10/31 EIA Natural Gas Inventories +77 bcf (Prior +80 bcf)