S&P 500 Drops 3%, Nasdaq Enters Correction as Chips Tumble

US stocks fell sharply Wednesday, the day after the Democratic sweep's relief rally fully reversed, with the S&P 500 sliding more than 3% and the Nasdaq pushing toward its first confirmed correction since the AI rally ran out of room. SPY, the exchange-traded fund that tracks the S&P 500, was down 3.21% to $742.20 from the prior close of $766.81, while QQQ, which tracks the Nasdaq-100, fell 4.90% to $658.02. Wire reports were calling the session the S&P 500's steepest one-day drop since 2025, a drawdown steep enough that traders were keeping an eye on the circuit-breaker thresholds that pause trading at a 7% decline.

The selling was not confined to the biggest names. Small caps fell alongside them, with IWM, the Russell 2000 ETF, down 3.44% to $274.26, so the pain ran through the whole tape rather than hiding inside the index averages. The move completes a sharp reversal of the morning's post-election bounce that this site covered when the S&P 500 stood at 7,688.62, up 1.58% in the first flush of relief. What looked like a risk-on reaction to Tuesday's results has, within hours, inverted into the broadest risk-off session of the past year.

Related reading: AI capex and the payout question: cash-flow-negative buildouts and the 38% mega-cap weight.

Why the AI trade is suddenly the problem

The center of gravity is the AI-chip complex. Per market feeds, AMD, Micron, SanDisk, Qualcomm and Nvidia were the Nasdaq's heaviest drags, the same leadership that carried the index for much of the year. What changed is the frame: midterm results have reopened the question of whether the AI-capital-spending boom is durable, after a campaign in which AI policy and government spending on compute sat near the center of the debate. A market that was paying for growth at any price is now demanding proof, and the chip trade, priced for near-perfect execution, is the first place that repricing shows.

The bull case cuts the other way, and it is worth stating plainly. The fundamentals that built the trade have not changed in forty-eight hours: data-center demand is still growing, and mega-cap earnings, including AMD's stronger-than-expected report this week that put a bid back under the de-rated sector, came in healthy. The Federal Reserve held policy steady on Wednesday, and Treasury yields eased as money rotated into safe-haven bonds, a move that normally takes pressure off high-multiple growth names. A violent down day does not by itself end an uptrend; it does reset the entry points and the risk tolerances of the people holding it.

For the broader framework, see our Fed policy coverage.

Related reading: S&P 500 posts biggest drop in 50 sessions after hot CPI.

The risk-off is spilling into crypto

Bitcoin was not spared. The token traded near $76,500 in Wednesday trading after touching an intraday low of $75,568, down about 4.9% on the day and roughly 5.5% over the rolling seven days. Liquidations were running near $600 million an hour and past $1 billion on the day, per tracking feeds, the forced selling that tends to accelerate a decline once margin gets squeezed. It is the same cascade that already knocked oil lower in the post-sweep unwind this site covered, which is the tell: this is not a story about any one asset. Risk assets of every stripe are being repriced at once, and crypto, trading on margin, is where the move shows up first and loudest.

The session is not over, and the levels matter. A Nasdaq close of 3% or more to the downside would confirm a correction, the 10% drawdown technicians use as the formal marker, and traders will be watching whether the S&P holds its recent support or accelerates toward the level that trips the first circuit breaker. The next hard catalyst is Friday's October employment report, whose preview published earlier today and now carries real weight: a labor-market print that changes the rate outlook would land in a market already sorting out what the post-midterm political map means for fiscal policy. The direction the tape takes from here tells you whether this was a one-day de-risking or the start of something bigger, and the jobs number, alongside the circuit-breaker watch, is what settles it.

Related reading: Alphabet stock drop: record 12% selloff erases $500B and reprices the megacap AI trade.

Related reading: Semis carry Nasdaq to a record Friday while storage names and Nike slide.

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