U.S. equity markets experienced one of their most dramatic two-day reversals of the year during the week, as an initially bullish post-midterm reaction quickly transformed into a broad risk-off unwind.
Wednesday brought a powerful relief rally, with the Dow Jones Industrial Average ($DJI) leading a sharp advance and the S&P 500 (SPX) posting one of its strongest sessions in months. By Thursday, all of those gains had reversed. At the close, the Dow fell 3.44%, the S&P 500 dropped 4.36%, and the Nasdaq-100 (NDX) plunged 6.36%, accentuating how quickly the post-election relief trade gave way to aggressive de-risking. The Nasdaq suffered its steepest daily decline since April 2025 as investors reduced exposure to AI, semiconductors, and data-center beneficiaries.
The reversal reflected a rapid change in interpretation of the midterm election results. Investors initially focused on the potential for greater policy gridlock and reduced geopolitical escalation, helping crude oil and Treasury yields fall Wednesday. By Thursday, attention had shifted toward the possibility of tighter scrutiny of AI infrastructure, data center permitting, and power usage. That triggered a dramatic reassessment of the investment cycle that has supported technology valuations throughout 2026.
Semiconductor stocks were hit particularly hard, with Nvidia (NVDA) tumbling roughly 9% on Thursday. The decline pushed the shares into negative territory for the year, with Nvidia now down roughly 3% year to date despite remaining one of the central beneficiaries of the AI infrastructure boom. Data-center developers, semiconductor suppliers, and AI-linked utilities were also caught in the selloff as investors reassessed valuations and the sustainability of capital-spending growth.
Sector Selloff Breadth, Through Thursday
Thursday's breadth confirmed that the selloff had expanded well beyond a handful of mega-cap names. All 11 S&P 500 sectors finished lower on the session. This week through Thursday, defensive leadership has remained visible. Consumer staples, communication services, and real estate were the strongest sectors, while technology, energy, and industrials were the weakest. Technology absorbed the largest damage as semiconductor and AI infrastructure names unwound, while energy suffered from a sharp retreat in crude prices Wednesday as markets assigned a lower geopolitical risk premium to the Iran conflict.
The weekly index picture through Thursday also showed where the pressure was concentrated. The Nasdaq Composite and Nasdaq-100 were the weakest major averages, while the S&P 500 and Russell 2000 also declined materially. The Dow held up better on a relative basis. Volatility surged, with the VIX and shorter-dated volatility measures moving into backwardation, which signals a sudden increase in demand for downside protection. High-yield credit also weakened, Bitcoin declined and Treasury prices firmed as investors rotated capital back toward safer assets.
Earnings Still in Focus
Quarterly earnings remained an important driver, particularly across technology and semiconductors, but company-specific fundamentals were often overwhelmed by the broader de-risking move. Advanced Micro Devices (AMD) offered an encouraging growth outlook and continued to point to strong demand tied to AI accelerators and hyperscale customers, yet the stock was swept lower with the rest of the semiconductor complex. Qualcomm (QCOM) faced a more fundamental challenge, coming under pressure after smartphone-chip sales disappointed relative to expectations. Investor psychology around AI is shifting, as investors are becoming less willing to solely reward future AI revenue opportunities and increasingly want evidence that rising capital spending can translate into stronger margins, free cash flow, and acceptable returns on invested capital.
Economic Data: Relatively Strong
October ISM Manufacturing rose to 55.5, supported by solid new orders and continued business investment, although the prices-paid index remained elevated at 75.2. October’s employment report is the next major catalyst: the data released Friday show the U.S. added 165,000 jobs, blowing past expectations calling for roughly 65,000 new jobs. The unemployment rate ticked down to 4.1%; it had been seen holding at 4.2%.
