"I feel like I'm back in 2008": AI trades collapse en masse, chip stocks enter a bear market, momentum ETF posts biggest drop since the pandemic, and buyers are on strike

On Thursday, a collective retreat unfolded on Wall Street. Selling intensified rapidly after the U.S. market opened, with almost no survivors from AI chip leaders like NVIDIA Corporation (NVDA.US) to defensive assets like Walmart Inc. (WMT.US). The Nasdaq 100 Index closed down more than 6%, marking its largest single-day decline since March 2020. In this selloff, the hardest-hit were precisely the companies at the core of the artificial intelligence (AI) boom. For months, concerns about an AI bubble had surfaced intermittently; earlier this year, the boom had driven stocks to repeated record highs and also fueled fears that it was a bubble destined to burst. Now, the Democrats' landslide victory in congressional elections could signal a political shift, potentially putting the brakes on the industry's rapid growth and affecting the hundreds of billions of dollars in capital flowing into its computing equipment. Policy expectation reversal triggers selloff, AI leaders lead declines At the close, the Nasdaq 100 Index was down more than 6%, the largest drop since the March 2020 COVID-induced crash. NVIDIA Corporation, the world's most valuable company, fell more than 9%, its biggest decline since January 2025, erasing all of this year's gains. All 30 components of the Dow Jones Industrial Average declined, the S&P 500 fell 4.4%, and the closely watched semiconductor stock index dropped 12%, its worst single-day performance since the pandemic outbreak. Amid speculation that hedge funds were dumping holdings, an ETF betting on the so-called momentum trade posted one of its worst single-day performances in over a decade, as investors rushed into U.S. Treasuries for safety. "I feel like I'm back in 2008 or 2001," said Greg Taylor, Chief Investment Officer at PenderFund Capital Management, referring to the dot-com and housing bubble busts. "The market is now too focused on a single theme and its unraveling. I think that's inevitable because we've paid too much attention to AI, and it has taken up too large a share of the market." The selloff capped two days of sharp volatility on Wall Street. Previously, voters frustrated by high gasoline prices, AI's impact, and data centers springing up in places like Texas delivered a clear rebuke to President Trump and his Republican Party in the midterm elections, with Democrats winning a landslide victory. The initial market reaction pushed stocks higher on Wednesday. Investors bet that a politically divided Washington would check Trump's power and accelerate an end to the Iran war, which had reignited inflation and pushed interest rates higher. But sentiment then reversed, with focus shifting to potential cracks in the AI boom, leaving dip buyers bruised. "They really got ahead of themselves," said Michael O'Rourke, Chief Market Strategist at JonesTrading Institutional Services LLC. "Next year's earnings forecasts make these stocks look cheap on a P/E basis. But if this policy change happens, the environment for data center construction will undergo a structural shift. Those forecasts are no longer valid." Nasdaq enters correction, momentum trade backfires The Nasdaq 100 Index slid deeper into correction territory, shedding $2.3 trillion in market value and falling nearly 15% from its October 6 record high. Traders paid more to hedge short-term swings in the Invesco QQQ Trust Series 1 Exchange Traded Fund (QQQ) than for long-term volatility protection in the SPDR S&P 500 ETF Trust (SPY) over the next three months, the first time since late July. This is a signal of uncertain stock market direction. "As someone who welcomes selloffs, I'm actually more cautious now," said Marta Norton, Chief Investment Strategist at Empower. She said she only invests in "companies that are very healthy operationally and look cheap on many traditional metrics." The rapid sentiment reversal dealt a heavy blow to an ETF employing a momentum trading strategy designed to chase the market's best-performing stocks. On days like Thursday, such a strategy can cause painful losses, with the iShares MSCI USA Momentum Factor ETF falling 8.2%, its biggest single-day drop since 2020. Michael Monaghan, Partner and Portfolio Manager at Founder ETFs, said many smaller hedge funds often employ similar strategies and amplified selling pressure by being forced to liquidate, while other buyers were unwilling to step in. "What we're facing now is a buyers' strike the large long-only funds that had been nibbling are no longer buying, and the small funds are frantically dumping everything," he said. Chip stocks enter bear market, high-risk assets under pressure On Thursday, the Philadelphia Semiconductor Index (SOX) plunged 12%, its worst single-day performance since March 2020. This pushed the benchmark index into a bear market, down more than 38% from its June 22 peak. The index includes chip leaders such as NVIDIA Corporation, Intel Corporation (INTC.US), and Advanced Micro Devices (AMD.US). These companies have benefited from the wave of AI equipment spending, but given elevated valuations, they are also among the sectors most vulnerable to a potential pullback. The Cboe Global Markets Inc Volatility Index (VIX) surged 11.57 points to close at 28.18, its highest level since March. The VIX measures implied price volatility of the S&P 500 Index. The VIX's expected volatility gauge posted its largest single-day gain since 2018, when a flood of speculative money into VIX short products triggered a volatility spike known as "Volmageddon." Additionally, the spread between spot prices and three-month futures levels widened to its largest since April 2025. This typically signals heightened investor fear and portends deeper declines. The decline intensified pressure on some of the stocks considered the market's riskiest. A Goldman Sachs Group, Inc.-compiled basket of the most-shorted stocks fell nearly 8%. Meanwhile, a basket of unprofitable tech companies including Roku (ROKU.US) and Peloton Interactive (PTON.US) dropped 7.7%, its biggest single-day decline since early June. Additionally, companies with the weakest balance sheets and higher debt burdens fell about 4%, their worst single-day performance since April 2025. The Russell 2000 Index fell about 4.5%, entering correction territory. The index includes small companies often weighed down by higher interest costs. The Wealth Alliance had already been reducing AI stock exposure, and its President and Managing Director Eric Diton said resistance to data centers could affect earnings. He said that given the sharp shift in sentiment, he remains cautious and has been buying energy stocks to hedge against high oil prices. "This selloff is extreme," he said, adding that he "can't be as bullish on the market as I was a few days ago."