Key Takeaways
- US equity markets regained some lost ground Friday after the bruising previous session, when AI stocks were hit by expectations that the Democrats’ midterm sweep could slow the AI buildout.
- Analysts are divided over whether Thursday’s selloff was the start of a sustained downturn for the tech trade or a short-term reset.
- Meanwhile, robust October jobs data led investors to increase their bets on a December rate cut from the Federal Reserve.
The US stock market rose on Friday, with gains driven by a rebound in many of the same artificial-intelligence-linked names that were caught up in a post-election rout after the Democrats’ victory in the US midterm elections.
The Morningstar US Total Market Index was 0.9% higher in midday trading. The S&P gained 0.8%, and the tech-heavy Nasdaq climbed 1.6%, regaining some losses from Thursday (its worst day in 19 months).
Shares in some of the hardest-hit tech stocks rallied throughout morning trading, with Advanced Micro Devices AMD adding 10.0%, Micron MU up 6.0%, Intel INTC up 6.9%, and Nvidia NVDA up 3.5%. Neocloud CoreWeave CRWV rose 4.6%, while its peer Iren IREN bounced 19.6%.
The early recovery was capped by a strong October jobs report that blew past expectations, sending US Treasury yields higher and halting equity gains. With Friday’s labor report showing robust growth, with 165,000 jobs added in October and unemployment dipping to 4.1%, investors are now assessing how the print—and AI-related market volatility—may inform the Federal Reserve’s next meeting in December. Odds of an interest rate hike rose to 76.8% following the report, according to the CME Group’s FedWatch tool.
“With AI fears gathering pace again, that led to a fresh round of question marks as to whether the Fed would hike again in December. For now it’s still considered likely,” says Jim Reid, head of global macro and thematic research at Deutsche Bank.
In Europe, which lacks exposure to many Big Tech companies, the Morningstar Europe Market Index struggled to regain momentum, paring losses only slightly through the session to trade down 1.2%. Selling was broad-based, even as tech stocks that were hurt in the prior session, like ASML ASML, recouped some losses.
Volatile trading deepened in Asia in the last trading session of the week, with South Korea’s Kospi (one of the biggest winners of the AI boom) plunging more than 6%. Exacerbated fears of a fallout for memory chip heavyweights SK Hynix 000660 and Samsung 005930 temporarily halted trading earlier in the session. The two stocks are now down around 19% and 13%, respectively, since the election, with the broader index 12% lower. In Japan, the Nikkei 225 tumbled 5.9% on Friday to enter bear market territory, amid losses for semiconductor-related stocks and tech investment giant SoftBank Group 9984.
Election Looms Over AI Stocks
Friday’s bounce follows Thursday’s brutal Wall Street selling, when the tech-heavy Nasdaq plunged 6.4% to record its worst day since the trade war selloff in April 2025 as the index confirmed a technical correction—a 10% drop from its Oct. 6 peak. Meanwhile, the S&P 500 slumped 4.4%, wiping out $3 trillion in value, in what was also its biggest drawdown since April 2025.
The sharp selloff comes after an initial post-election rally, as markets welcomed the removal of political uncertainty and the prospect of policy gridlock. However, investors quickly grew spooked that the Democratic Party’s sweep could usher in a new era of increased AI regulation and a potential slowdown in data center construction.
“This is another stick to hit the AI buildout with,” says Michael Roeg, senior equity analyst at Degroof Petercam. “There are all sorts of ingredients for this toxic cocktail, and now we have the midterms,” he continued, citing previous pullbacks on concerns over hyperscalers’ free cash flow, funding circularity, and neocloud risks.
Elsewhere, the yield on 10-year US Treasuries was last seen up 0.04 percentage points at 4.87%, while oil prices ticked higher, with Brent crude oil futures hovering around $98 per barrel. Spot gold prices edge up to $4,088.
Is the AI Stock Selloff a Temporary Correction?
Even before this week’s volatility, tech stocks were on uncertain footing, as investors grew more skeptical of the return on investment for bumper AI spending, following a record runup in tech shares in the first half of the year. Now, attention turns to how increased congressional oversight and changes in state authority may impact the data center rollout, including permitting and electricity and water use.
“The tech trade has always been about sentiment rather than fundamentals. We think the latter are sound, but sentiment has turned negative, and it will take a lot to turn it back around at this stage. In the meantime, institutional investors are selling, locking in decent gains year to date, while retail investors are panicked, further deepening the rout,” says Morningstar’s chief European markets strategist Michael Field.
Analysts nevertheless are divided on the length and extent of this latest rout. UBS analysts say they view the latest pullback as a “positioning reset,” rather than a sign of a lasting downturn in the AI investment cycle. They add that they expect to see upside in broad equity indexes over the next six to 12 months.
“For the selloff to signal a lasting downturn in the AI investment cycle, we think we would need to see evidence that AI-related revenue growth is slowing, cloud utilization is weakening, or lower AI costs are failing to generate sufficient new usage to absorb expanding capacity,” adds UBS chief investment officer Mark Haefele.
Degroof’s Roeg notes that increased AI curbs may slow down the AI capex curve and extend it over a longer period. However, he adds that the “silver lining” is that AI compute will become even more scarce, bolstering already-constrained demand. “Q3 hasn’t shown any signs of weakening demand. The stock market is moving in a very different direction from fundamentals,” he says.
