Nasdaq plunges 5% into correction territory as election stirs data center fears

The tech-focused Nasdaq Composite dropped more than 5% on Thursday. The slide left the index more than 11% below its record peak set last month. On Wall Street, a fall of at least 10% marks a market correction, while a 20% drop defines a bear market.

Midterm election shakes AI sector

The steep selloff followed Tuesday’s midterm elections, where Democrats won control of both the House and the Senate. Investors also reacted to state-level races, notably in Texas, where Gina Hinojosa won the governor’s seat. Hinojosa campaigned on an immediate pause for data center construction.

Market participants worry that new state-level rules could delay data center projects. Such restrictions would put pressure on businesses linked to artificial intelligence infrastructure. Semiconductor equities felt the immediate brunt of the news. The iShares Semiconductor ETF dropped 12% on Thursday, posting its steepest single-day decline since March 2020.

Historical patterns point to rebound

History suggests tech stocks often endure more turbulence before mounting a comeback. Across 10 corrections over the past decade, slumps in 2018, 2020, 2022, and 2025 saw further selling during the following month. However, the index rebounded within six months in all of those instances except for 2022.

Looking at historical averages, the Nasdaq has climbed 9.41% from correction bottoms over three months and 17.03% over six months. The early 2022 correction proved to be an exception, as the index dropped an additional 18.3% over six months and ended down 24.3% a year later.

Midterm cycles also hint at long-term gains despite choppy trading. CappThesis founder Frank Cappelleri noted that the Nasdaq was up 12 months after midterms in 12 out of 13 cycles since 1974. In 2018, tech shares climbed after the vote, suffered a steep drop in December, but still finished roughly 15% higher a year later.