Nasdaq's Worst Week Since 2020: Is the AI Trade Actually Dead?

Let's set the scene. The Democrats just pulled off a midterm sweep, retaking Congress. The VIX spiked 69.66% in a single session to 28.18. The Nasdaq dropped 5.52% on November 5th alone, its worst single day in over a year. And Goldman Sachs data showed hedge funds sold US tech stocks by the largest amount ever recorded. Cool, cool, totally normal market behavior.

The proximate cause of the tech carnage, according to Bloomberg's podcast coverage, was political anti-data-center sentiment following the midterms. Voters approved 46 of 47 data center ballot measures, but the vibe from a newly Democratic Congress spooked institutional money anyway. Dan Ives pushed back hard, calling the selloff an overreaction that treated AI capital spending as "done" when it's anything but. He's got a point. The fundamentals on AI infrastructure spending haven't changed overnight because Nancy Pelosi's team won a few Senate seats.

Meanwhile, Anthropic's valuation has quietly slid from a target of up to $2 trillion down to $1.1 to $1.3 trillion, while OpenAI closed roughly $11 billion in fresh funding at a $1.25 trillion valuation, with the round potentially growing to $20 billion. The Fundstrat crew on YouTube is making the Cisco/Netscape comparison, warning that frontier AI companies might not be the best long-term bets. Historical receipts: it was Netflix, eBay, and Expedia that won the internet era, not Netscape. Worth sitting with that one.

The broader market picture isn't pretty either. The S&P 500 is now down over 4.3% from its November 4th peak of 7,688, with the Iran war layering geopolitical risk on top of political uncertainty. Ten-year Treasury yields dropped to 4.84% as safe-haven demand kicked in, the bond market doing its usual "we told you so" dance. The Dow managed to hold up slightly better, down only 3.44% on November 5th versus the Nasdaq's gut-punch, which suggests some rotation into old-economy names as investors looked for somewhere to hide.

The bull case here is straightforward: Berkshire just bought back a record $9.6 billion in shares and is sitting on $377.4 billion in cash, essentially a giant "markets are expensive but we're patient" signal from Buffett. The bear case is equally straightforward: a divided government with an emboldened Democratic Congress, an active military conflict in the Middle East, the Bank of England hiking rates for the first time since 2023, and a VIX that just went from 16 to 28 in 48 hours. That's not a wobble, that's a regime change in volatility.

The Nasdaq's +1.09% bounce on November 6th is either the start of a relief rally or a dead cat doing its thing. Given that systematic funds are still unwinding positions on technical triggers, the smart money right now might just be watching the tape and letting the dust settle before calling a bottom.