Why stocks fell after the midterms and what comes next

The S&P 500 fell 4.4% on Thursday, November 5, its worst day since April 2025, one day after stocks rallied on news that Democrats had won control of both chambers of Congress. News reports tied the selling to concerns about what the new majorities could mean for rules on AI and data centers. The technology-heavy Nasdaq Composite dropped 5.5%, which put it in a correction, a decline of at least 10% from its recent high. For the Dow Jones Industrial Average, it was the worst second trading day after a midterm election in data going back to 1896, according to Yahoo Finance.

Most of the selling hit companies that make computer chips. The PHLX Semiconductor Index, which tracks the largest U.S.-listed chipmakers, lost about 12% in a single day. Micron and AMD each fell about 17%, and Nvidia fell about 9%.

The Magnificent Seven tech stocks (Tesla, Nvidia, Microsoft, Meta, Amazon, Alphabet, and Apple) lost more than $1 trillion in combined market value. Tesla fell the most, about 10.8%, followed by Nvidia at about 9%. Apple fell the least, about 1.5%. Nvidia lost more than $440 billion in market value, and Tesla lost about $164 billion. The chart below includes trading before and after regular hours, so its figures differ slightly from the closing figures above.

The selling spread beyond AI and tech stocks, and all 11 sectors of the S&P 500 closed lower. The Wall Street Journal noted that this was a change from recent sessions, when money leaving AI stocks moved into other parts of the market. The index lost about $2.8 trillion in market value for the day, according to NBC News.

Stocks recovered some of their losses on Friday and Monday. On Sunday, Nvidia CEO Jensen Huang acknowledged an extramarital affair, and Nvidia’s board opened an independent investigation into reports that he had been targeted by foreign intelligence. He did not name the woman. The New York Times and the Financial Times have reported that U.S. intelligence agencies believe Alice Huang, a businesswoman tied to Megaspeed, a Singapore data center company, has been passing information to Beijing. China’s Foreign Ministry called the claim unsubstantiated, Megaspeed has denied wrongdoing, and Nvidia’s board said it has no reason to believe national security or company secrets were compromised. Megaspeed has bought billions of dollars of Nvidia chips and has been under U.S. investigation over whether those chips helped Chinese companies get around export restrictions. Nvidia shares fell about 4% on Monday while the broader market rose, and another 5.5% on Tuesday.

On Tuesday, a higher-than-expected October inflation report pushed stocks lower and Treasury yields higher.

Investors may be asking whether the selling has run its course or whether risks are rising. One indicator to watch is the VIX, the Cboe Volatility Index, often called Wall Street’s “fear gauge.” It measures how much the market expects the S&P 500 to swing over the next 30 days, based on S&P 500 option prices. The number is stated as a yearly rate, so a VIX of 20 means options traders expect swings of about 20% a year, or roughly 1.25% a day.

The VIX jumped on Thursday, then fell back. It closed Monday at 19.92 and Tuesday at 19.46, close to its average of about 19.5 since 1990 and far below its peak in 2020.

A second indicator is what companies say about future sales and profits, and Nvidia’s report next week may matter most.

Nvidia sits at the center of the AI industry, and many of the industry’s biggest players depend on Nvidia as a chip supplier, an investor, or both. On Tuesday, CNBC published an article titled “Jensen Huang’s affair with alleged Chinese spy further complicates Nvidia’s China problem.” It included the chart below, which maps Nvidia’s network of partners and the $42.4 billion it spent buying stakes in the six months through July 26. Red lines show companies Nvidia bought stakes in, brown dotted lines show companies that run on Nvidia chips, and blue lines show money Nvidia has promised if needed.

Nvidia is scheduled to report results for its fiscal third quarter on November 17, and Jensen Huang’s comments about future growth could shape how optimistic investors feel about the AI industry.

In my view, the economy looks much the same as it did a week ago. Since then, new reports showed employers added 165,000 jobs in October, the unemployment rate was 4.1%, and consumer prices rose 0.4% from September, more than forecast. I noted in last week’s UPdate that the economy and stocks don’t always move together. I wrote,

“The economy grew at a 3.4% annual pace last quarter, job openings rose to 7.52 million in September, and corporate profits hit a record in the second quarter. The S&P 500, meanwhile, has gone sideways since June, closing November 3 slightly below its June 2 level.”

Last week I also shared LPL Financial’s research showing stocks have historically risen in the 12 months after a midterm election. That history covers a full year, and last week was the first few days.

The major U.S. indexes are still up for the year, though below their recent highs. Through Monday’s close, small company stocks in the S&P 600 and mid-size company stocks in the S&P 400 continue to lead the S&P 500 and the Nasdaq this year, including dividends.

What does this mean for me?

Last week’s swings suggest investors are less certain about the outlook for the economy and the tech industry. Third-quarter earnings reports from key companies this month may offer insight into the health of the economy, and Nvidia’s November 17 report may be the most important one for the AI industry.

I’ll be watching these reports, along with upcoming inflation and jobs data, for signs of how consumers and businesses are holding up. Nvidia reports on November 17 and the Federal Reserve meets on December 9. If last week’s swings raised questions about how your portfolio fits your plan, schedule a time to talk before year-end.