President Donald Trump over the weekend blamed Democrats' midterm election victories for wiping out roughly $3 trillion in US stock market value in a single day, and pledged the market would return "at a scale and strength never seen before," without offering specific measures.
What the market is really debating around this rout is whether government regulation of AI development and restrictions on data center construction will alter long-term profit potential, or mainly delay the realization of investment and amplify short-term declines through crowded positioning and leveraged liquidations.
Prominent investment research firm The Kobeissi Letter leans toward the latter explanation, arguing that the election outcome had already been largely priced in, and that the subsequent sudden deterioration in selling and profit-taking sentiment, combined with excessively high leverage, created a negative feedback loop that turned the correction into a stampede.
On November 5, the Nasdaq 100 plunged 6.36%, while the Philadelphia Semiconductor Index plummeted 12.25%, both marking their largest single-day declines since March 2020. According to Bloomberg Intelligence statistics, Nasdaq 100 constituents shed approximately $2.3 trillion in a single day, setting a record for the largest one-day market value loss in the index's history. The roughly $3 trillion figure corresponds to the cumulative single-day market value lost by S&P 500 constituents, matching a record set during the COVID-19 pandemic. The Nasdaq Composite fell 5.52% that day, its largest decline since April 2025.
Post-election market action was not a one-way decline. On November 4, Microsoft, Amazon, Alphabet, and Meta rose approximately 6.7%, 6.1%, 3.2%, and 1.4% respectively. Capital initially traded on falling oil prices and the expectation that fiscal deficit constraints would improve the macro environment after Democrats won majorities in both chambers of Congress, while new data center construction restrictions could ease capital expenditure pressure on tech giants and increase the scarcity value of existing computing resources. Meanwhile, the Philadelphia Semiconductor Index fell 3.13%, reflecting concerns that the supply chain would more directly bear the brunt of slowing demand for new data center infrastructure-related equipment.
By Thursday, the market extended these concerns to AI revenue growth and return on investment, and selling spread to the large tech giants. On Friday, data showing 165,000 new jobs and an unemployment rate falling to 4.1% provided evidence of economic resilience. The Nasdaq 100 and Philadelphia Semiconductor Index rebounded 1.35% and 4.21% respectively, and the VIX fear index retreated from 28.18 to 25.64.
However, based on closing levels from the two surrounding Fridays, the two indices still fell approximately 4.91% and 12.15% for the full week. This path of initial divergence, then stampede, then repair indicates that capital is reassessing the price of AI growth rather than simply fleeing and abandoning tech assets based on a single election result.
Trump Blames Democrats' Election Win for $3 Trillion Stock Market Rout
US President Donald Trump posted on Truth Social over the weekend that the midterm election results set America "back a giant step in the course of history." Clearly, Trump was blaming the massive market value losses suffered by the stock market last week on the midterm election results.
The US president wrote on Truth Social: "The results of this latest election have set America back a giant step in the course of history 鈥?even the stock market, which 'took off like a rocket' under 'Trump,' lost $3 trillion in a single day."
The selloff occurred after Democrats scored an overwhelming election victory. Investors feared that a Democrat-controlled Congress and newly elected state-level officials could push for stronger AI regulation and restrict data center development. These concerns further intensified pressure on the AI investment trade, which had already shown signs of strain as infrastructure construction costs continued to climb.
"But do not fear, we will return at a scale and strength never seen before!" Trump added, without further elaboration.
On November 3, Democrats won control of both chambers of Congress, seizing multiple Senate seats, House districts, governorships, and state legislature control, and locking in majorities in the House and Senate early.
According to The Kobeissi Letter, the market initially rose, adding more than $1.2 trillion in market value on the first trading day after the midterm elections, but this move quickly reversed.
On November 5, US stocks fell sharply, wiping out trillions of dollars in market value. The tech-heavy Nasdaq Composite benchmark posted its largest single-day decline since "Liberation Day" in April 2025.
Investors worried that a Democratic victory meant stricter scrutiny of AI development and AI infrastructure, particularly a continued slowdown in AI data center construction and a contraction in the broader AI industry's expansion.
Since preliminary election results were announced on November 3, the price of the SPDR S&P 500 ETF (SPY.US), which closely tracks the S&P 500 index, fell about 2.7%, while the Invesco QQQ Trust (QQQ.US), which tracks the Nasdaq 100 index, dropped nearly 5%. The SPDR Dow Jones Industrial Average ETF Trust (DIA.US), which closely tracks the Dow Jones index, fell about 1%.
The Kobeissi Letter posted on X that the stock market plunge could not be fully attributed to the midterm election results, as the market had already largely priced in that outcome. It said: "One of the most likely catalysts is growing market concern that AI technology could even be 'banned,' or at least face extremely strict industry regulation. Over the past 24 hours, Democratic lawmakers have publicly called for restricting advanced AI development, including directly 'banning artificial superintelligence.'"
However, the market commentary and investment research firm noted that a full ban is unlikely, as it would effectively mean the US ceding its position in the global AI race to China. It said: "Instead, we believe what is happening is a sudden shift in market sentiment colliding with excessively high leverage, potentially triggering forced liquidation of positions by several large institutional investors. Therefore, today's decline is driven more by technical factors and deleveraging-induced stampede dynamics than by fundamentals. This is not to downplay regulatory concerns, which are real. But current price action looks neither orderly nor rational."
The Kobeissi Letter added: "We are in the midst of the largest technological revolution in human history. Keep the long view and stay calm."
As of press time, on the retail investor platform Stocktwits, retail sentiment toward SPY and QQQ was "bearish," while sentiment toward DIA was "bullish."
Regulatory Concerns Trigger Earnings Reassessment, Leveraged Liquidations Amplify Market Price Impact
Tech stocks are sensitive to policy changes because AI valuations depend heavily on the continuous growth trajectory of AI computing deployment, customer usage, and profit realization over the coming years.
From an industry mechanism perspective, stricter data center approval, grid connection, or power cost-sharing requirements would lengthen project construction cycles: chip and equipment orders could face delayed delivery, revenue recognition for computing operators would be postponed, while construction-period interest would continue to accrue. Even if end-user AI demand does not disappear, shifting cash flow realization further into the future would lower its present value; for new cloud providers relying on debt-fueled expansion, financing pressure would be particularly acute.
SimCorp research head Melissa Brown noted that fully blocking AI infrastructure development may not be realistic, but a severe slowdown in AI data center construction would undoubtedly shake US economic growth expectations built on rapid expansion of computing demand.
Policy risks also vary by level. The push by some lawmakers to "ban artificial superintelligence" and pause advanced AI development involves specific technologies and regulatory frameworks and cannot be directly equated with a ban on all AI businesses. Official records show that the relevant H.R.10538 bill version is at the stage of being introduced and referred to committee. What the market is currently repricing is the probability of restrictive policies being enacted, as well as uncertainty around project costs, timelines, and returns.
For companies that already have power supply capacity, customer bases, and mature business models, these changes could actually reinforce resource barriers. Therefore, even within the same AI theme, asset value changes may not move in the same direction.
Fundamental expectations determine the starting point of a selloff, while trading structure may determine the speed and magnitude of the decline. JPMorgan's derivatives team estimated that in the first 90 minutes after Thursday's open, net selling of S&P 500 futures reached approximately $11 billion; leveraged ETF selling in late trading exceeded $60 billion, with about 90% related to tech-related products. Trend-following CTAs reduced positions after prices broke below signal levels, volatility-target strategies cut exposure as risk rose, and leveraged ETFs adjusted daily leverage. These mechanisms caused the decline itself to generate further selling, providing a trading-level basis for The Kobeissi Letter's assessment that "a sudden sentiment shift collided with excessive leverage."
From this perspective, Trump's remarks are intended to boost confidence, but sustained recovery still requires support from both earnings and capital absorption. If the adjustment mainly reflects project delays and deleveraging, while corporate orders, customer demand, and long-term returns remain solid, price declines could improve the investment appeal of quality AI assets. Active buyers may also enter before all mechanical selling ends, and Friday's rebound already shows both can happen simultaneously. However, defining the entire plunge as a "purely technical adjustment" would equally ignore that construction costs and profit realization timelines are being reassessed.
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