At first glance, it looked like the AI bubble had popped. The S&P 500 lost more market cap in a week than at any point since the tariff shock of April 2025, while the Nasdaq 100 lingered at three-month lows. The reality proved less dramatic — more like someone shifting gears than pulling down a load-bearing wall.
US equity pullbacks
The main selling came from volatility-control funds. Barclays estimates these funds slashed exposure to equities by about 30 percentage points in a single day, the steepest cut since February 2020, the start of the COVID crisis.
Strong US labor data should have soothed fears that AI is destroying jobs and calmed investor anxiety about the technology's prospects, but it didn't. The question now is whether November 5's rout was a one-off washout or the start of a longer unwind of the AI trade that had been building for months.
Bulls who urged to buy the dip insist they are right despite the record cap-loss. Morgan Stanley recommends that clients add risk over the next two to three weeks and keeps a year-end S&P 500 target of 8,000 (about +8.4% from the November 6 close).
Yardeni Research argues the AI bubble has not popped but merely released excess air. They see no economic catastrophe — it is a correction — and maintain a target of 7,900. The Street's median target is around 7,973.
S&P 500 and sector dynamics
More broadly, the market is simply rotating. Corporate profits as a share of GDP have roughly doubled since the 1990s — by 2026, that share was about twice the long-run norm. FactSet shows profit margins hit record highs in Q2, soaring like a rocket.
A Democratic victory implies data-center construction will slow, not stop. The market penalized tech names on the expectation that projects will be built more slowly and at higher cost, which would weaken results for chipmakers and weigh on the broader economy. If spending stabilizes, that could pave the way for renewed S&P 500 buying.
The Fed can be a source of mid-term support. Kevin Warsh says markets should do part of the work of tightening. A deeper equity sell-off would tighten financial conditions and reduce the need for interest rate hikes. In effect, if inflation eases, the Fed could act as a "put" under equities in place of the political or policy shocks that have been driving volatility.
Technically, the daily chart shows that the S&P 500 has formed an inside bar. Consider placing pending orders around the bar's range: a buy stop near the high (~7,445) and a sell stop near the low (~7,365) to trade a breakout in either direction.