US stocks plunged after the midterm elections, disrupting Wall Street expectations, and institutions are on alert that funds may be forced to reduce positions, triggering a new round of selling.

November 6 - According to Bloomberg, Wall Street trading desks had expected that after the U.S. midterm elections, sidelined capital would re-enter the market and drive U.S. stocks to resume their rally, but a selloff subsequently emerged. The Nasdaq 100 fell 6.4% on Thursday, its biggest drop since 2020, with approximately $2.3 trillion in market value wiped out. The selloff spread to other markets, with Asia's benchmark stock index falling nearly 4%, while U.K. and European markets saw relatively smaller declines.

Investors are concerned that a landslide Democratic victory in the elections, along with public opposition to data center expansion, will slow AI buildout. Positioning structure, systematic investor selling, and the rapid unwinding of concentrated hedge fund bets may also explain the speed and breadth of the selloff. Bruno Schneller of Erlen Capital Management warned that as losses widen, risk managers may force funds to cut exposure, potentially triggering a new round of selling regardless of fundamentals.

In the credit market, ING is seeking to sell approximately $500 million in data center loan portfolios in a single transaction. The sale arrangement comes days after Democrats swept the midterm elections, raising doubts about the future of many related projects.

However, as of the time of reporting, U.S. stock futures and some AI-related stocks rebounded in Friday premarket trading. Nvidia rose 4.3%, Broadcom gained 5.3%, AMD climbed 8.3%, and Marvell advanced 8.2%; in the memory sector, Micron rose 8.5%, SanDisk gained 9.6%, and Western Digital added 6%. Markets with smaller exposure to the AI trade were relatively resilient. Emmanuel Cau of Barclays believes that given the policy gridlock, the current indiscriminate selloff appears excessive relative to likely policy outcomes, but the market still needs time to settle; if oil price tail risks subside, Europe could relatively benefit.