AI stock selloff wipes $3 trillion from Wall Street, circuit breaker threshold in sight

Wednesday’s surge, in which the S&P 500 gained 1.6% and the Dow rose 3% after the Democratic sweep of Congress, included the Dow’s best performance after a midterm election in 44 years, according to Fortune. All 11 sectors of the S&P 500 were negative, with information technology posting its worst day since March 2020.

Nvidia fell more than 9%, turning negative for the year and losing over $440 billion in market capitalisation alone, according to CNBC. Advanced Micro Devices tumbled 15%, and the Philadelphia Semiconductor Index dropped nearly 11%, on track for its steepest decline since March 2020. CoreWeave and GE Vernova also fell, while Vertiv and Vistra each suffered double-digit percentage losses.

Investor attention shifted from the midterm results to the regulatory environment for AI. According to Ballotpedia, 46 of 47 local data-centre-related measures decided across the US in 2026 favored tighter restrictions, although some votes were advisory rather than legally binding. In Texas, where Wells Fargo estimates 27% of planned data-centre capacity is located, Democrat Gina Hinojosa defeated Republican Governor Greg Abbott after campaigning for an immediate moratorium on new data centres. Abbott had paused new data-centre permits in September pending a grid audit.

The S&P 500 fell as low as about 7,394, below its Wednesday close of 7,688. A further decline of 3.2 percentage points to 7,150.41 would trigger the first market-wide circuit breaker, a 15-minute halt in US trading. The second threshold, a 13% decline, would cause another pause, and a 20% drop would shut trading for the day.

The CBOE Volatility Index, Wall Street's fear gauge, rose by its biggest single-day point gain since April 2025.

"We suspect there is going to be some scrutiny on this aggressive AI buildout," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank, in comments reported by Decrypt.

Economist Mohamed El-Erian questioned whether the broader economy could sustain its momentum if technology investment slowed, but cautioned that Democratic control may not necessarily produce a substantial tech slowdown. Citrini Research said it was identifying a potential peak in estimates for AI infrastructure spending. The Kobeissi Letter said a ban on data-centre construction, if enforceable, would effectively mean ceding the global AI race to China.

Despite the broad selloff, there were pockets of strength. AppLovin jumped 30% after beating earnings expectations and approving a share buyback program of up to $3.2 billion, bringing the program’s total potential value to $3.6 billion. Tapestry, owner of the Coach and Kate Spade brands, rose 7.6% after delivering stronger profit than expected and raising its revenue and earnings forecasts. Berkshire Hathaway hit an all-time high. Consumer staples in the S&P 500 rose 1.5%. The yield on the 10-year Treasury fell to 4.83% from 4.90%, which could signal investors were seeking safer assets.

Overseas, South Korea’s Kospi tumbled 5.3%, with trading halts during the session. Japan’s Nikkei 225 fell 1.8%. London’s FTSE 100 slipped 0.4% after the Bank of England raised its main interest rate for the first time in three years to help limit high inflation. “The best thing that can happen is to resolve the conflict in the Middle East,” Bank Governor Andrew Bailey said.

The selloff came despite positive US economic signals: lower unemployment claims and better-than-expected productivity over the summer. Markets now await Friday’s employment report, which could influence the Federal Reserve’s next interest-rate decision.