Wall Street rallies after Democratic win, then reverses amid AI trade pullback
U.S. stocks jumped on Wednesday following Democratic control of Congress, but fell sharply on Thursday as investors sold AI-related and chip stocks.
Wall Street saw a sharp rally on Wednesday after Democrats secured majorities in both the House and Senate, with the Dow Jones Industrial Average gaining more than 1,500 points and the S&P 500 rising nearly 2%. The Nasdaq Composite also posted gains, lifting the technology-heavy index into positive territory.
Within 24 hours, the market reversed direction. On Thursday, the Dow fell over 1,800 points, the S&P 500 dropped 4.4%, and the Nasdaq lost 5.5%, as investors reduced exposure to artificial-intelligence-related and semiconductor equipment stocks. The volatility index (VIX) rose sharply, reaching its highest level since late March.
Steve Sosnick, chief strategist at Interactive Brokers, said he monitored the market closely on multiple news networks as futures slipped, noting that the decline in the VIX may have initially encouraged risk-on trading that pushed prices higher.
Truist chief markets strategist Keith Lerner described Thursday’s moves as a "buyers' strike" in technology stocks, while Nomura strategist Charlie McElligott likened the unwind to a reversal of the year’s most popular market bets.
Goldman Sachs estimated that states where newly elected governors have pledged to pause data-center construction represent about 45% of planned U.S. data-center capacity. In Texas, the newly elected governor, Gina Hinojosa, has indicated a moratorium on new data-center approvals, a factor that contributed to concerns about the AI sector.
Elon Musk posted on X that "data centers in space look pretty appealing right now," reflecting interest in alternative data-center solutions.
The market’s rapid swing illustrates how quickly investor sentiment can change in response to policy expectations and sector-specific risks.