Wall Street reversed from celebration to selloff within 24 hours this week after midterm election results, with the tech-heavy Nasdaq Composite entering correction territory amid concerns about artificial intelligence regulation. The Dow surged more than 1,500 points Wednesday following a Democratic sweep of both chambers of Congress, while the S&P 500 rallied nearly 2 percent. By Thursday, stocks had reversed course as investors sold AI and chip stocks.
The market volatility index, the VIX, spiked to its highest level since late March, when President Donald Trump extended a deadline related to the Iran war. The swing marked the latest in a year of sharp reversals for markets.
The Democratic victories introduced uncertainty for the artificial intelligence industry. Newly elected governors in states accounting for an estimated 45 percent of planned U.S. data center capacity have promised to stop or pause data center construction, according to Goldman Sachs. In Texas, where more than half of the country's planned data center capacity is slated for construction, Democrat Gina Hinojosa won the governor's race after pledging a moratorium on new data center approvals.
Wednesday's rally appeared driven by investors welcoming the removal of election uncertainty and the prospect of divided government potentially limiting some of Trump's agenda. Falling oil prices also eased inflation concerns. Steve Sosnick, chief strategist at Interactive Brokers, said the drop in volatility may have encouraged volatility-sensitive trading strategies to buy stocks, adding upward pressure to the rally before the subsequent reversal.