The tumultuous midterm election week on Wall Street began with a celebration among investors. On Wednesday, stocks soared after Democrats swept both chambers of Congress. The Dow (^DJI) rose more than 1,500 points. The S&P 500 (^GSPC) rose almost 2%. And in less than 24 hours, stocks reversed course and plunged Thursday as Wall Street and Main Street investors dumped winners in AI and chip stocks, sending the tech-heavy Nasdaq Composite (^IXIC) into correction territory. The extraordinary reversal marked just the latest blow in a year of wild swings, with the market’s best expectation of future volatility, the VIX (^VIX), hitting its highest level since President Trump extended the deadline for the Iran war at the end of March. As the election results came in, Steve Sosnick, chief strategist at Interactive Brokers, was glued to his television, switching between CNN, Fox, MSNBC and Bloomberg as he watched stock futures fall. When Sosnick went to bed, futures were still down about 1%. Democrats had won control of both the House and Senate, resolving a major source of uncertainty for markets while introducing a specific complication to the country’s artificial intelligence investment boom. 7,376.86 +23.13 (+0.31%) At Close: Nov 6 at 4:37:09 pm EST ^GSPC ^DJI ^IXIC States where newly elected governors have promised to stop or pause data center construction account for about 45% of planned U.S. data center capacity, according to Goldman Sachs. In Texas, where more than half of the country’s data center capacity is planned to be built, the stakes were high. Democrat Gina Hinojosa had just won the race to become governor after promising a moratorium on approving new data centers. The change caught the attention of one of the world’s most prominent business titans. “Data centers in space look pretty attractive right now,” Elon Musk posted on X early Wednesday morning. Supporters in Austin celebrate the victory of Democratic gubernatorial candidate Gina Hinojosa after Texas Governor Greg Abbott conceded the race during the US midterm elections on November 3, 2026. (Reuters/Kaylee Greenlee) · Reuters / REUTERS On Wednesday morning, Wall Street was seeing rays of hope in the blue wave. Stocks soared. The Dow Jones rose 3%, its best day in months. The S&P 500 rose 1.6% and the Nasdaq gained 1.4%. Investors appeared to welcome the prospect of divided government, which could limit some of President Trump’s agenda. Oil prices (CL=F, BZ=F) also plummeted, helping to ease concerns about inflation. And the elimination of electoral uncertainty caused a sharp drop in the VIX. That drop may have encouraged volatility-sensitive trading strategies to buy shares, adding more upward pressure to the rally, according to Sosnick. As prices rose, more investors came on board. But behind the rally, trouble was brewing. For more than a month, hedge funds had been selling stocks linked to the rise of artificial intelligence in a bid to lock in year-end profits. Shares of chip manufacturing equipment companies Lam Research (LRCX) and Applied Materials (AMAT) had already lost about a third of their value over the previous month. The prospect of a blue sweep that would bring new restrictions on data centers was just one more reason to withdraw from the AI trade. On Thursday, those tensions became impossible to ignore. The Dow Jones plunged more than 1,800 points, reversing Wednesday’s gains. The S&P 500 sank 4.4%. The Nasdaq plummeted 5.5%. Keith Lerner, chief market strategist at Truist, described the moves toward clients as “kind of a buyers’ strike” in technology stocks. The VIX Volatility Index (^VIX) soared as much as 70%, a move that has only occurred eight times since 1991, according to CBOE data. “They are shooting the generals,” Nomura strategist Charlie McElligott wrote on Thursday, describing the collapse of the year’s most popular stock bets. For Sosnick, the stock reversal illustrates how quickly investor confidence can evaporate. The election results had not changed. What had changed was investors’ willingness to take risks. And in a market already questioning the rise of AI, that was enough to turn Wednesday’s celebration into Thursday’s defeat. At Friday’s close, the S&P posted its worst weekly performance since June. Follow David Hollerith on X @DsHollers.
