Nasdaq Plunges Into Correction After US Midterm Elections

The Nasdaq Composite entered correction territory on Thursday, plunging more than 5% to close more than 11% below its record high. The sell-off wiped more than £2 trillion off the index's value, driven by investor fears that massive spending on artificial intelligence infrastructure may not yield sufficient returns.

The market downturn followed a sweep by the Democratic Party in the US midterm elections. Volatility intensified after Gina Hinojosa was elected governor of Texas, as she campaigned on an immediate moratorium for data center development. Investors worry these state-level restrictions will hinder construction and damage the AI trade, leading to the iShares Semiconductor ETF recording its worst single-day drop since March 2020.

Retail investors contributed to the slump by selling a net $338 million of single stocks, the largest one-day outflow since March 2020. Vanda Research noted that retail traders abandoned individual names in favor of leveraged vehicles, describing the event as a "rare buyers' strike colliding with forced selling."

Other benchmarks also declined, with the Dow Jones Industrial Average plummeting 1,800 points and the S&P 500 falling. Elon Musk lost billions as Tesla shares dropped 11%. In London, the FTSE 100 erased early gains as panic spread, sending the Vix volatility index to its highest level in seven months.