The AI Trade Broke; the Long-Term Uptrend Held

Our October review said that until the broader market confirmed what technology had signaled, the right posture was selective participation with defined risk. Five weeks later, technology itself gave way. The Nasdaq-100 fell about 12% from October 2 to November 6, while the S&P 500 lost about 4.5% and the Dow held near its highs.

The decline came in two waves: a mid-October break in semiconductors and AI infrastructure, and a second, sharper one after the November 3 midterm elections. Through both, analysts kept raising earnings estimates for the companies being sold. The market was repricing risk and valuation, not earnings that had already fallen.

The Scoreboard

Large industrial and value companies held up; technology and semiconductors took the losses.From October 2 to November 6, the S&P 500 fell from 7,722 to 7,377 (−4.5%) and the Nasdaq-100 (QQQ) from 749.60 to 656.10 (−12.5%). The semiconductor index fell about 17% in October alone. Energy, consumer staples and utilities led October’s sector gains; communication services fell the most (First Financial Trust, Yahoo Finance, Alain Guillot).
VIX closes: 16.34 on September 30, 19.42 on October 30 and 28.18 on November 5, the period high (Investing.com, FRED).

Market	October (to Oct 30)	Nov 2–6 week	Level Nov 6
Dow Jones Industrial Average	+1.7%	−0.9%	51,285.73
S&P 500	−0.9%	−2.7%	7,376.86
Russell 2000	+0.5%	−2.1%	2,754.11
Nasdaq Composite	−5.3%	−3.4%	24,579.42
10-year Treasury yield	−0.37 pts, to 4.92%	to 4.86%	4.86%
VIX	+18.8%, to 19.42	+32.0% (28.18 on Nov 5)	25.6

The Fed Held, With a Hike Still in View

On October 28 the Federal Reserve kept its policy rate at 3.75% to 4.00%, by a 10–2 vote. Both dissenters, Cleveland Fed President Beth Hammack and Governor Lisa Cook, wanted another 25-basis-point increase. Chair Kevin Warsh said the Fed remains focused on bringing inflation back to its 2% target (Fox Business).

The data explain the split. September consumer prices rose 0.6% in the month and 3.7% over the year, and third-quarter GDP grew 3.4%. Long-term rates still eased: the 10-year Treasury yield fell 37 basis points in October to 4.92%, down from the two-decade high we noted last month (First Financial Trust).

Third-quarter earnings were solid but less surprising than usual. With about 60% of S&P 500 companies reported, 82% beat estimates, but by an aggregate 1.9%, the smallest margin since late 2022. Oil was the other pressure: crude rose about 14% in October, to roughly $103, on tensions involving Iran and shipping through the Strait of Hormuz.

The AI Trade reversed in Two Waves

Last month we noted that leadership within the AI trade was rotating rather than narrowing. In October it stopped rotating and fell together.

The first wave came in mid-October. On October 14 the Nasdaq had its worst day since July, with CoreWeave down 15.5% and Oracle down nearly 9%. The next day South Korea’s Kospi fell 7.6%, triggering a circuit breaker, as memory makers SK Hynix and Samsung dropped 9–11%. The causes were several: a firm inflation report, concern over how the AI build-out is being financed, slower revenue growth at the leading AI labs, and a cautious outlook from TSMC (Yahoo Finance).

Earnings did not repair it. Alphabet fell more than 12% on October 29, its worst day on record, as AI spending weighed on free cash flow despite cloud growth above 100%. Microsoft beat estimates and held up better. Intel fell almost 29% on October 30 (Yahoo Finance, Alain Guillot). On November 2, Oracle filed to raise $20 billion, half in new stock and half in notes, and its shares fell about 7% (Motley Fool).

The second wave came after the election. On November 5 the S&P 500 fell more than 4%, its worst day since the April 2025 tariff selloff, and the semiconductor index dropped 12%. Qualcomm’s weak handset outlook and news that about 600,000 Nvidia H200 chips were held up in Hong Kong added to the policy concerns described below.

What did not change was earnings estimates. In our review of consensus data on November 5–6, next-fiscal-year estimates for most AI hardware and power companies were still rising over the prior 30 days, while their shares fell 20% to 50% in four weeks. Prices were discounting a future slowdown that analysts have not yet put into their numbers. Whether estimates now follow prices down is the key question for the coming months.

The Midterms Put Data Centers on the Ballot

Democrats won control of Congress on November 3. The broad market rose the next day, but the reaction inside it was sharply divided.

Data centers had become a local election issue. Governors-elect in Ohio and Texas campaigned on pausing new data-center construction, and Goldman Sachs estimated that about 45% of planned U.S. data-center capacity could face restrictions (Yahoo Finance). Companies tied to the build-out fell: GE Vernova −5.8%, Vistra −9%, CoreWeave −5.3%. Defense names fell 2–4% on doubts about a larger defense budget.

The beneficiaries were renewables and healthcare providers. First Solar rose 13.8%, Enphase 10.2% and HCA Healthcare 7.2%, on expectations of friendlier clean-energy policy and a possible return of enhanced health-insurance subsidies (Devdiscourse). Analysts we follow doubt that new law will halt construction outright. More hearings, permitting delays and local opposition are the likelier path, and those raise cost and timing risk for the most capital-intensive part of the AI trade.

A Strong Jobs Report Kept a December Hike Alive

October payrolls rose 165,000, against expectations near 65,000, and unemployment fell to 4.1% from 4.2%. Revisions added 84,000 jobs to August and September, and hourly earnings rose 0.4% in the month and 3.1% over the year (BLS).

The report reversed last month’s softer picture. Markets now put the odds of a December rate increase at roughly 78% to 83% (SRN News, Fox Business). A stronger economy supports earnings, but higher short-term rates raise the cost of funding the AI build-out, the same concern behind the October selloff.

Money Rotated Rather Than Left

Last month we said a broadening of participation beyond the largest technology companies would confirm a renewed advance. Participation did broaden, but as a rotation away from technology rather than alongside it.

In October the Dow gained 1.7% and the Russell 2000 0.5% while the Nasdaq fell 5.3%. By early November new 52-week highs were concentrated in healthcare, insurers, banks and consumer staples. On the morning of November 5, financials accounted for 57 and healthcare for 44 of 216 new highs across U.S. stocks, while technology and industrials led the new lows. Drug makers such as AbbVie and AstraZeneca broke out to new highs on heavy volume, as did insurers including Allstate and Aflac.

The rotation did not protect the whole market. At the November 5 close, decliners outnumbered advancers by about seven to one, and new lows (394) were nearly double new highs (202). Defensive sectors held best: consumer staples and utilities each fell less than 1% that day, against 8% for technology.

Bitcoin Gave Back Its Reversal

The bitcoin breakout we described last month did not hold. Bitcoin closed the period near $75,800, down about 12% from roughly $86,000, after five consecutive lower weekly closes. On November 6 it briefly traded at $74,767, below the late-September low, before recovering. It now sits on its 50-week moving average.

The selling came through the exchange-traded funds. BlackRock’s iShares Bitcoin Trust recorded five straight days of net outflows from October 30 to November 5, about $1.04 billion in total (CoinCentral). Over the past 60 days bitcoin has moved with technology stocks more than with interest rates or the dollar, so the AI selloff weighed on it directly.

Elsewhere, gold fell 7% in October to a 12-month low near $3,886. Crude oil rose about 14% in October on Middle East supply risk, then eased, with Brent back below $100 by November 6 (First Financial Trust, Yahoo Finance).

Technical Position

Two of the three deterioration signals we named last month were met. The Nasdaq-100 failed to hold its September breakout, and the S&P 500 closed below its 50-day average and the 7,500 floor of its consolidation. The third, continued weakness in financials, was not: banks and insurers were among the leaders.

The longer-term structure is damaged but intact:

• Nasdaq-100 (QQQ): closed the week at 656.10, about 14% below its October high. It held the rising trendline from the April 2025 low, near 648, on a weekly close. That came on volume twice its 10-week average, and the index remains below its 40-week average near 681.
• S&P 500: closed at 7,376.86, about 6% below its October high near 7,840. It sits just above a support zone of 7,294 to 7,334, where the 200-day average meets the May, June and July lows.
• Distribution: the S&P 500 has logged 7 heavy-volume down days in the past 25 sessions, the Nasdaq-100 9. That is a high count, typical of a correction rather than a healthy advance.

History offers some perspective on the S&P 500’s position. In our review of S&P 500 data since 1950, there were 79 first pullbacks in a rising market to within 2% of a rising 200-day average. The index was higher three months later 73% of the time, with a median gain of 3.8%. In 22% of cases, however, it fell more than 5% below the 200-day within three months. The weekly close relative to the 7,294–7,334 zone is the line between those outcomes.

Outlook

The market enters mid-November in a correction led by its former leaders, with the long-term uptrend still intact.

Three developments would indicate the correction is ending:

1. The Nasdaq-100 reclaiming its 40-week average near 681, then its old range floor near 700, on above-average volume.
2. Earnings estimates for AI hardware continuing to rise, confirmed by Nvidia’s results on November 17.
3. The S&P 500 recovering 7,555, the floor of its August–October range, with new highs again outnumbering new lows.

Three would indicate a deeper decline:

1. A Nasdaq-100 weekly close below its rising trendline near 648.
2. An S&P 500 weekly close below the 7,294–7,334 support zone.
3. Analysts beginning to cut estimates or ratings in AI hardware, which would confirm that the price decline is about earnings, not only sentiment.

The calendar is heavy: Nvidia reports on November 17, the October inflation data arrive in mid-November, and the Federal Reserve meets December 8–9 with a rate increase largely priced in. Seasonality is supportive: the S&P 500 has risen from the October close of every midterm year since 1950 through the following June, a median gain of about 15% (Alain Guillot, citing Yahoo Finance). With only 19 cases, we treat that as context rather than a forecast.

Bottom Line

The period brought a Federal Reserve on hold with a December increase in view, a 12% decline in the Nasdaq-100, a midterm result that added policy risk to the AI build-out, and a jobs report stronger than expected. The broad market absorbed it with a 4.5% decline, cushioned by rotation into healthcare, financials and value.

Last month’s question was whether the broader market would confirm technology’s breakout. Technology broke down instead, while its earnings estimates kept rising. The long-term uptrends in both major indexes still hold.

The appropriate posture is patience with defined risk: hold positions whose long-term trends remain intact, act only on confirmed weekly closes, and rotate from names where both price and fundamentals are weakening toward those showing strength.