'Worst Drop In 19 Months': Wall Street Rally Ends Abruptly After Major AI Stocks Come Under Fire

Stock Market News: After a powerful rally following the US midterm elections, Wall Street witnessed a broad sell-off. The Nasdaq Composite suffered the biggest damage, while the S&P 500 also slipped sharply. The volatility gauge surged, signalling a sudden jump in investor anxiety.

The reversal was particularly striking because the rally had been fuelled by hopes that the election outcome -- a landmark US Congress by Democrats -- would provide greater clarity on the economic and political outlook. But the market's next move exposed a different concern: investors were increasingly questioning whether technology and AI stocks had run too far, too fast.

What Triggered The Sell-Off?

1. AI And Chip Stocks Suddenly Came Under Pressure

The biggest trigger was a sharp sell-off in semiconductor and artificial intelligence-linked stocks. The Nasdaq Composite, which comprises around 3,500 companies, plunged 5.52 per cent on November 5, marking its biggest daily decline in 19 months, according to a Reuters report. The S&P 500 fell 4.36 per cent, while the Dow Jones Industrial Average dropped 3.44 per cent. All three indexes recorded their steepest daily declines since April 2025. 

Significantly, Nasdaq 100 fell 6.36 per cent in a day -- which is the worst since the Covid-induced rout in 2020.  Chipmakers were among the biggest casualties. Advanced Micro Devices (AMD) plunged 17.3 per cent, Micron Technology fell 17.5 per cent, while Nvidia lost 9.3 per cent (worse since January 2025). Qualcomm dropped 9.5 per cent after its forecast for smartphone chip sales disappointed investors. 

The weakness extended beyond chipmakers to companies building infrastructure for artificial intelligence. Investors have poured money into AI-related stocks over the past year, betting that demand for computing power, data centres and advanced chips will continue to rise. But Thursday's sell-off showed that even strong long-term expectations can leave stocks vulnerable when investors begin questioning valuations or future spending.

2. Democrats' Election Victory Raised Fresh Questions About AI Infrastructure

The midterm election rally had initially been driven by optimism over the Democrats' sweeping victory. However, the same election outcome soon became a source of uncertainty for technology investors. Several Democratic candidates campaigned against the rapid expansion of AI data centres, citing concerns about electricity consumption, environmental impact and rising costs for local communities.

Investors are now assessing whether the political shift could translate into tighter regulations, delays or restrictions on new data-centre projects. The AI investment boom depends heavily on the expansion of data centres and the enormous spending required to build them. A slowdown in infrastructure investment could affect chipmakers, server manufacturers, data-centre operators and companies supplying power to these facilities. Uncertainty over the future of AI infrastructure spending added to the pressure on technology stocks. 

3. Investors Booked Profits After The Election Rally

The market had rallied sharply on November 4, following the election results. The Dow Jones Industrial Average gained more than 1,000 points at the opening, while the S&P 500 recorded its biggest daily percentage gain in three months.

When markets opened higher on Thursday, selling pressure quickly emerged. Investors who had bought stocks ahead of the election or during the previous session's rally began reducing their exposure. The selling gathered pace as technology stocks weakened.

The reversal was particularly painful for investors who had crowded into AI and semiconductor shares. Once these stocks began falling, selling spread across the broader market.

US Midterm Elections 2026

US midterm elections delivered a sweeping victory for the Democratic Party, which won control of both the US House of Representatives and the US Senate, ending unified Republican control of Washington and dealing a major political setback to President Donald Trump. Democrats flipped multiple Republican-held Senate seats, including in Texas, Kansas, North Carolina, South Carolina, Ohio, Iowa, and Maine, while also making gains in the House and winning several key governorships. 

The results were widely viewed as a voter backlash against high living costs, economic concerns, and dissatisfaction with the administration's policies, including the Iran conflict. With control of Congress, Democrats will be able to shape the legislative agenda, launch investigations into the administration, and act as a significant check on Trump's final two years in office.