Technology stocks helped drive the S&P 500 and Nasdaq to all-time highs earlier this year, but beneath the surface, cracks have been forming, suggesting investors’ love affair with everything AI is on the verge of a break. I recently highlighted five technology stalwarts that have already retreated 50% from their summertime highs, including Intel. Similarly, Magnificent Seven stocks, including Nvidia, haven’t lived up to their billing, as the Roundhill Magnificent Seven ETF (MAGS) is down 4% today and has lost 8.4% over the past month. On Wednesday, those cracks became a flashpoint, with the Nasdaq Composite, home to the biggest technology stocks, tumbling 5% at noontime. The benchmark S&P 500 is more diversified but still heavily driven by big-cap technology stocks, which comprise nearly 50% of the index, including Amazon and Alphabet, which fall into consumer discretionary and communication services, respectively. Unsurprisingly, the S&P 500 ETF (SPY) is down over 3% as of this writing. The drops extend far beyond Mag 7, though. The biggest decliners today in the S&P 500 include: Sandisk: -16.5% Bloom Energy: -16.5% Western Digital: -16.1% Everpure: -14.9% Lumentum: -14% Source: Fidelity ActiveTrader Pro Fidelity highlights Post-Midterm election history The market reset comes on the heels of a decisive shift of power in Washington, D.C. The Democrats overwhelmed Republican rivals in battleground states, a so-called blue wave that put the Democrats in control of the House of Representatives and the Senate. Previously, the White House had a blank check because it controlled all three branches of government; Wall Street is rethinking its models for 2027 to account for potential shifts in priorities. Also read: Billionaire Bill Ackman’s market warning resurfaces as stocks plunge On November 4, energy stocks fell amid optimism that a divided government could lead to a less aggressive posture in the Middle East, removing a major crude oil headwind. Now, that reset has taken a toll on big winners in the AI trade, presumably due to the risk of increased pushback against building data centers. Data centers drew significant negative attention during campaigns this year. Case in point: Sherrod Brown won back his Senate seat in Ohio after spending big money airing ads that called out his opponent Husted as “the face of data centers in Ohio.” He got 50% of the vote, while Husted got 45.2%. “Seven in 10 Americans oppose constructing data centers for artificial intelligence in their local area, including nearly half, 48%, who are strongly opposed,” wrote polling giant Gallup in May. Bank of America still expects $1 trillion in data center spending in 2027, according to a note shared with me earlier this week, so it may be short-sighted to think that technology will remain down and out for long. Certainly, history suggests investors stay the course. Midterm election years are historically the weakest performers for the S&P 500, on average, in the four-year Presidential cycle, returning 5% annually, according to Fidelity. The third year of the Presidential Election Cycle has historically been the friendliest for investors, with an average return of 14.5% since 1950. Haver Analytics and Fidelity Investments. The outlook for next year is much better. Fidelity data shows an average 14.5% return in the third year of the Presidential cycle, the best annual return among the four-year period, regardless of who wins. “This historical trend has not been tied to any one political party winning or losing power,” notes Fidelity. Are technology stocks in the bargain bin? Many technology stocks have given back significant gains over the past few months, which could create opportunities for investors. Stocks can often fall much further and faster than expected, so discipline is key when buying into a sell-off. More Wall Street: Nvidia and Micron are about to lord their successes all over Wall Street Nvidia, Palantir, and Alphabet send waves through Wall Street Wall Street elites will pocket windfall from record $46 billion profits The volatility index, or VIX, is one tool that may help investors spot when fear has surged to levels that are favorable for buyers. The measure tracks options market pricing for S&P 500 puts and calls for the next 30 days. When the VIX jumps toward 30 (or beyond), it can signal that markets may be ready to bounce. Investors can also keep an eye on the CNN Fear/Greed ratio. That ratio is currently pegged at ‘extreme fear,’ which may signal that the downdraft is getting a bit overdone. Overall, Bank of America notes that higher earnings in the semiconductor sector have lowered valuations, making the sector seem a bit more attractive than it otherwise would be. Still, keep a close eye on those stocks because, historically, semiconductors are cyclicals. “Semiconductors are cyclical, and cyclical stocks work backward. The price-to-earnings is lowest when earnings are at their peak, because investors are pricing the decline before it shows up,” reminded veteran trader James DePorre in a post on TheStreet Pro. More Stocks News SanDisk stock plunges 20% as AI selloff deepens despite strong earnings Apple’s new $299 device comes with a warning for buyers Billionaire Bill Ackman’s market warning resurfaces as stocks plunge CVS split leaves shareholders with two stocks and three big questions
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