Key Takeaways
- • The Nasdaq 100 fell 6.4%, erasing $2.5 trillion in market value on November 5, 2026, as investors unwound the crowded AI trade, according to Reuters.
- • The Cboe Volatility Index (VIX) jumped as much as 11.75 points to an eight-month high of 28.36, its biggest intraday jump in more than 18 months.
- • Analysts linked the selloff to fears that the Democratic Party's midterm victory could stall AI infrastructure expansion, along with rebalancing by leveraged and systematic funds.
- • Leveraged ETFs were expected to sell about $47 billion of stocks into the close, the second-largest amount in Nomura's data dating back to July 2006.
- • Retail selling reached levels approaching the largest single-stock selling day since the COVID-related crash, with Vanda Research noting retail dip-buying had effectively disappeared.
Summary
The Nasdaq 100 index fell 6.4% on Thursday, November 5, erasing $2.5 trillion in market value as the AI trade that had driven markets for months rapidly unraveled, Reuters reported. The Nasdaq Composite fell 5.5%. Investors feared that the Democratic Party's sweeping midterm victory could slow AI infrastructure expansion, adding uncertainty to a trade already on shaky ground for several weeks. The selloff contrasted sharply with the prior session, when investors largely brushed aside the perceived election-related threat and markets rallied.
The Cboe Volatility Index (VIX), Wall Street's most closely watched gauge of anxiety, jumped 11.75 points to an eight-month high of 28.36 before closing at 28.18. Reuters reported it logged its biggest intraday jump in more than 18 months. Options activity was dominated by hedging, with put premiums running at about two times typical levels across index products, according to options analytics service Mercury Alerts. Chris Murphy, co-head of derivative strategy at Susquehanna Financial, said activity reflected both fresh protection in semiconductors and AI names and profit-taking on existing hedges.
Analysts said much of the selling reflected an unwind of the prior session's rally and of crowded AI positioning. John Flood, partner and managing director in the global banking and markets division at Goldman Sachs, said in a note that "our phones are exploding with asks for color" and that hedge funds were selling pockets of the market, such as hyperscalers, they had bought the previous day. Leveraged and inverse ETFs, along with some systematic strategies, typically rebalance near the close and amplify volatility-driven moves. Nomura estimated leveraged ETFs would sell about $47 billion of stocks into the close, mostly from tech and AI-focused funds.
Hedge funds were also hurt. A Goldman Sachs prime brokerage report sent to clients on November 5 said large multi-strategy hedge funds were down "significantly" due to outsized exposure to large AI stocks, and technology, media and telecommunications-focused funds were down 2.6% from a year ago. Retail selling added pressure: about an hour before the close, retail investors were on track for their largest day of single-stock selling since the COVID-related crash, according to Viraj Patel, global macro strategist at Vanda Research. Steve Sosnick of Interactive Brokers said that if the reassessment of the AI investment theme proves secular rather than a trading rebalance, "that's problematic."
The Cboe Volatility Index (VIX), Wall Street's most closely watched gauge of anxiety, jumped 11.75 points to an eight-month high of 28.36 before closing at 28.18. Reuters reported it logged its biggest intraday jump in more than 18 months. Options activity was dominated by hedging, with put premiums running at about two times typical levels across index products, according to options analytics service Mercury Alerts. Chris Murphy, co-head of derivative strategy at Susquehanna Financial, said activity reflected both fresh protection in semiconductors and AI names and profit-taking on existing hedges.
Analysts said much of the selling reflected an unwind of the prior session's rally and of crowded AI positioning. John Flood, partner and managing director in the global banking and markets division at Goldman Sachs, said in a note that "our phones are exploding with asks for color" and that hedge funds were selling pockets of the market, such as hyperscalers, they had bought the previous day. Leveraged and inverse ETFs, along with some systematic strategies, typically rebalance near the close and amplify volatility-driven moves. Nomura estimated leveraged ETFs would sell about $47 billion of stocks into the close, mostly from tech and AI-focused funds.
Hedge funds were also hurt. A Goldman Sachs prime brokerage report sent to clients on November 5 said large multi-strategy hedge funds were down "significantly" due to outsized exposure to large AI stocks, and technology, media and telecommunications-focused funds were down 2.6% from a year ago. Retail selling added pressure: about an hour before the close, retail investors were on track for their largest day of single-stock selling since the COVID-related crash, according to Viraj Patel, global macro strategist at Vanda Research. Steve Sosnick of Interactive Brokers said that if the reassessment of the AI investment theme proves secular rather than a trading rebalance, "that's problematic."
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