In the Markets Now: Selloff Summary for Nov. 5

By the Numbers

The S&P 500 fell 4.4% Thursday, its worst day since Apr. 2025 and third-worst since the bull market started in Oct. 2022. The tech-heavy Nasdaq-100 fell 6.4%, its worst day since Mar. 2020, putting it 15% below its Oct. 6, 2026 all-time high. All 11 sectors were down on the day, but Consumer Staples (-0.7%) and Utilities (-0.7%) fared best.

What Caused the Move?

Post-election Recalibration

Following Democrats’ strong midterm results, investors are reassessing the extent to which more political resistance could delay data center construction. While a Democratic sweep was largely projected by prediction markets and polling, the magnitude of victories in key markets has introduced fresh uncertainty around the AI trade. UBS, for example, estimates ~30% of expected 2028 data center additions could be at risk of delay. Semiconductors and AI-related stocks have been some of this bull market’s best-performers, so this added layer of uncertainty likely spurred some profit-taking (even with today’s selloff, semis are up 110% over the last 18 months). As with all big down-days, there’s a “sell first, ask questions later” attitude that grips markets and can spur a chain reaction: bad news → profit-taking in winners → falling prices trigger broader de-risking → technical levels break → more selling.

Technical De-risking Amplifying Fundamental Pressure

 As volatility rises, larger investors often reduce exposure, creating selling that can become detached from changes in the underlying fundamentals. We saw an extreme example this summer with Leopold Aschenbrenner’s Situational Awareness fund, where losses across leveraged AI infrastructure bets ultimately forced an unwind of its equity portfolio that spilled over into public markets. In times like this, positioning, leverage and liquidity can drive price action well beyond what fundamentals alone would imply.

Is the AI trade over?

I’d say no, but with a few caveats. In my view, there is no putting the toothpaste back in the tube – AI adoption is rising, models continue to improve rapidly, and the geopolitical race for AI leadership should keep investment a national security priority. But against a backdrop of higher interest rates and political opposition that will raise data center construction costs, investors are increasingly demanding evidence that AI spending can translate into sustainable profits and productivity gains. Higher quality stocks had already been outperforming ahead of the election, and market rotation has favored non-AI sectors. That said, a meaningful amount of bad news is now reflected in AI stocks, with valuations across many parts of the ecosystem sharply compressed. From here, we’d expect a bumpier and more selective environment, where earnings quality and returns on investment matter more than raw enthusiasm alone. Constraints on new data center development could also favor the largest hyperscalers with existing capital and infrastructure over companies whose growth might depend more heavily on outside financing and future buildouts.  

Putting Volatility In Perspective

Over the 50 years through the end of 2025, there have been:

• 379 days when the S&P 500 lost 2% or more (about 3% of trading days)
• 25 selloffs that reached -10% or worse 
• 12 selloffs of about -20% or worse 

Yet the S&P 500 is up 27,850% over that time (or, 11.9% annualized.).

More From Baird

• Baird Strategas Midterm Review, Nov. 2026
• ITMN: Elections and Investing, Oct. 2026
• Bull & Baird: Elections and You, Oct. 2026
• Baird Strategas Quarterly Update, Oct. 2026

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