Nasdaq Plunges 5.5% Into Correction as Dow Drops Over 1,800 Points on AI Regulation Fears

Wall Street reversed sharply on Thursday 5 November, wiping out Wednesday's post-election rally. The Nasdaq fell 5.52% into correction, the S&P 500 dropped 4.36% and the Dow lost 3.44%, as chip and AI stocks sold off on fears that Democratic wins could mean tighter AI regulation. Short-term Treasury yields fell, oil rebounded and traders pushed back expectations for the next Fed rate hike.

Below, we cover the sell-off, what drove it, how it connects to Wednesday's midterm rally and what to watch next.

Wednesday's Rally Gives Way to a Thursday Rout

On Wednesday, after Democrats won control of Congress, the Dow gained 3.03% to close at 53,356.12, the S&P 500 rose 1.58% and the Nasdaq 1.44%. On Thursday, Reuters reported, the S&P 500 dropped 4.36% to 7,353.73, the Nasdaq declined 5.52% to 24,315.00 and the Dow fell 3.44% to 51,523.06, a loss of about 1,833 points.

It was the Nasdaq's biggest one-day drop in 19 months and the largest since the April 2025 tariff announcement known as Liberation Day. The Nasdaq closed more than 10% below its record close on 6 October, which meets the technical definition of a correction. Reuters said about $3 trillion was wiped from the value of S&P 500 companies. Even after the fall, the S&P 500 is still up 7.4% in 2026 and the Nasdaq is up 4.6%.

Why Stocks Sold Off: AI Regulation Fears

Reuters tied the sell-off to the midterm results. Democratic wins on Tuesday, including in states where opposition to new data centres has mounted, fuelled concerns that tighter regulation could slow the AI infrastructure buildout that has helped lift stocks to record highs this year.

CNN reported that investors were weighing Democratic wins in states such as Texas, which are hubs for planned data centres. CNN also noted that while the major indexes rose on Wednesday, shares of chipmakers and companies tied to the AI data centre buildout were already falling beneath the surface, and the selling intensified on Thursday.

Chip and Data Centre Stocks Lead the Decline

The damage was concentrated in AI-linked names. Nvidia fell about 9%, erasing its gains for the year, according to CNN. Reuters reported that the Philadelphia Semiconductor Index fell about 12%, its second-biggest fall on record. Data centre operators IREN and Applied Digital dropped more than 14% and CoreWeave fell almost 10%, while AI-exposed utilities and equipment suppliers GE Vernova and Constellation Energy fell 7.5% and 2.5%.

Not every move was linked to the election. Reuters noted that Qualcomm fell 9.5% after it missed Wall Street estimates for fourth-quarter smartphone chip sales.

Treasury Yields Fall as Rate Hike Bets Shift

The 10-year Treasury yield fell to 4.84% from 4.90% on Wednesday, its lowest level in two months, CNN reported. In Reuters' Trading Day column, short-end yields fell about 12 basis points, and rates traders pushed back the expected timing of the Fed's next hike to March.

That is a notable change. After the Fed's 28 October decision, CME FedWatch put the chance of a December hike at 85%. The Fed's next decision is on 9 December, and the column said rates markets are now pricing only about 40 basis points of total tightening.

Oil Rebounds After a Four-Day Drop

Oil bounced back after falling for four sessions. Reuters reported that oil ended the day 3% to 4% higher. CNBC reported that Iran's Islamic Revolutionary Guard Corps said two oil tankers and a tugboat caught fire in separate incidents after trying to use unauthorised routes through the Strait of Hormuz.

Analysts offered mixed signals. Citi raised its likelihood of a continued standoff with Iran to 30% from 15%, saying the White House could focus on its executive powers in foreign policy now that the midterms are over. JPMorgan said the resumption of Gulf supply has pushed the global oil market back into surplus after months of disruption.

Other Assets Under Pressure

The Reuters column also reported that Bitcoin fell 6% to around $75,000, and that Japan's stock market lost 1.8%. A broad risk-off move followed the sell-off on Wall Street.

How Thursday Connects to Wednesday

The same event sits behind both days. Wednesday's rally came with lower oil and falling Treasury yields after the Democratic sweep. Thursday's sell-off came as Reuters and CNN tied the drop in AI and chip stocks to the same midterm results. Oil, yields and tech stocks have therefore moved on the election outcome in different ways within two sessions.

Market Snapshot at the Close

• S&P 500: 7,353.73, down 4.36%
• Nasdaq Composite: 24,315.00, down 5.52%, in correction
• Dow Jones: 51,523.06, down 3.44%
• US 10-year Treasury yield: 4.84%, a two-month low
• Oil: Ended 3% to 4% higher
• Bitcoin: Down 6% to around $75,000

What to Watch Next

• The US jobs report on Friday 6 November: It is due at 8:30 am Eastern Time, and economists expect payrolls to rise by roughly 59,000 to 62,000 with unemployment at 4.2%, after a gain of 29,000 in September, according to Kiplinger.
• Chip and AI stocks: Whether the sell-off continues or stabilises after the biggest drop in 19 months.
• AI and data centre policy: Whether Democratic leaders in Congress or in key states put forward specific proposals.
• The US consumer price report on 10 November: The October inflation reading will be the next major input for the Fed.
• The Fed decision on 9 December: Rate expectations have shifted, and incoming data will decide whether they hold.
• Hormuz and Iran headlines: Tanker incidents and talks continue to move oil.

Because markets can move sharply around data and political headlines, many traders plan position sizes and exit levels before major events.

The Bottom Line

A day after the midterm results lifted stocks, the same results were cited for a sharp sell-off in AI and chip stocks. The Nasdaq is in correction, the S&P 500 had its worst day since April 2025, Treasury yields fell and rate markets pushed back the timing of the next Fed hike.

Friday's jobs report is the next major test, followed by US inflation data on 10 November and the Fed's decision on 9 December.

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